Shenzhen Chipscreen Biosciences Co., Ltd. (SHSE:688321) shareholders would be excited to see that the share price has had a great month, posting a 26% gain and recovering from prior weakness. Unfortunately, the gains of the last month did little to right the losses of the last year with the stock still down 24% over that time.

After such a large jump in price, when almost half of the companies in China's Pharmaceuticals industry have price-to-sales ratios (or "P/S") below 3.2x, you may consider Shenzhen Chipscreen Biosciences as a stock not worth researching with its 16.4x P/S ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly elevated P/S.

How Shenzhen Chipscreen Biosciences Has Been Performing

Shenzhen Chipscreen Biosciences hasn't been tracking well recently as its declining revenue compares poorly to other companies, which have seen some growth in their revenues on average. One possibility is that the P/S ratio is high because investors think this poor revenue performance will turn the corner. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

Is There Enough Revenue Growth Forecasted For Shenzhen Chipscreen Biosciences?

The only time you'd be truly comfortable seeing a P/S as steep as Shenzhen Chipscreen Biosciences' is when the company's growth is on track to outshine the industry decidedly.

Retrospectively, the last year delivered a frustrating 1.2% decrease to the company's top line. Even so, admirably revenue has lifted 94% in aggregate from three years ago, notwithstanding the last 12 months. So we can start by confirming that the company has generally done a very good job of growing revenue over that time, even though it had some hiccups along the way.

Turning to the outlook, the next three years should generate growth of 33% each year as estimated by the sole analyst watching the company. That's shaping up to be materially higher than the 19% per annum growth forecast for the broader industry.

With this in mind, it's not hard to understand why Shenzhen Chipscreen Biosciences' P/S is high relative to its industry peers. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.

What We Can Learn From Shenzhen Chipscreen Biosciences' P/S?

Shares in Shenzhen Chipscreen Biosciences have seen a strong upwards swing lately, which has really helped boost its P/S figure. While the price-to-sales ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of revenue expectations.

As we suspected, our examination of Shenzhen Chipscreen Biosciences' analyst forecasts revealed that its superior revenue outlook is contributing to its high P/S. Right now shareholders are comfortable with the P/S as they are quite confident future revenues aren't under threat. It's hard to see the share price falling strongly in the near future under these circumstances.

Having said that, be aware Shenzhen Chipscreen Biosciences is showing 2 warning signs in our investment analysis, you should know about.

If companies with solid past earnings growth is up your alley, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

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