Despite an already strong run, China Regenerative Medicine International Limited (HKG:8158) shares have been powering on, with a gain of 35% in the last thirty days. The annual gain comes to 203% following the latest surge, making investors sit up and take notice.

Although its price has surged higher, China Regenerative Medicine International's price-to-sales (or "P/S") ratio of 1.6x might still make it look like a strong buy right now compared to the wider Biotechs industry in Hong Kong, where around half of the companies have P/S ratios above 14.8x and even P/S above 37x are quite common. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly reduced P/S.

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View our latest analysis for China Regenerative Medicine International

How Has China Regenerative Medicine International Performed Recently?

With revenue growth that's exceedingly strong of late, China Regenerative Medicine International has been doing very well. It might be that many expect the strong revenue performance to degrade substantially, which has repressed the P/S ratio. If you like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's out of favour.

Although there are no analyst estimates available for China Regenerative Medicine International, take a look at this free data-rich visualisation to see how the company stacks up on earnings, revenue and cash flow.

Is There Any Revenue Growth Forecasted For China Regenerative Medicine International?

There's an inherent assumption that a company should far underperform the industry for P/S ratios like China Regenerative Medicine International's to be considered reasonable.

If we review the last year of revenue growth, the company posted a terrific increase of 30%. Still, revenue has fallen 68% in total from three years ago, which is quite disappointing. Accordingly, shareholders would have felt downbeat about the medium-term rates of revenue growth.

In contrast to the company, the rest of the industry is expected to grow by 2,551% over the next year, which really puts the company's recent medium-term revenue decline into perspective.

With this in mind, we understand why China Regenerative Medicine International's P/S is lower than most of its industry peers. Nonetheless, there's no guarantee the P/S has reached a floor yet with revenue going in reverse. Even just maintaining these prices could be difficult to achieve as recent revenue trends are already weighing down the shares.

What Does China Regenerative Medicine International's P/S Mean For Investors?

Shares in China Regenerative Medicine International have risen appreciably however, its P/S is still subdued. It's argued the price-to-sales ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

As we suspected, our examination of China Regenerative Medicine International revealed its shrinking revenue over the medium-term is contributing to its low P/S, given the industry is set to grow. Right now shareholders are accepting the low P/S as they concede future revenue probably won't provide any pleasant surprises either. Given the current circumstances, it seems unlikely that the share price will experience any significant movement in either direction in the near future if recent medium-term revenue trends persist.

Before you take the next step, you should know about the 3 warning signs for China Regenerative Medicine International (1 is potentially serious!) that we have uncovered.

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Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.