What Jacobio Pharmaceuticals Group Co., Ltd.'s (HKG:1167) 32% Share Price Gain Is Not Telling You

Jacobio Pharmaceuticals Group Co., Ltd. (HKG:1167) shares have continued their recent momentum with a 32% gain in the last month alone. The last 30 days bring the annual gain to a very sharp 64%.

Following the firm bounce in price, Jacobio Pharmaceuticals Group's price-to-sales (or "P/S") ratio of 16.2x might make it look like a strong sell right now compared to other companies in the Biotechs industry in Hong Kong, where around half of the companies have P/S ratios below 10.7x and even P/S below 4x are quite common. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's so lofty.

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View our latest analysis for Jacobio Pharmaceuticals Group

How Jacobio Pharmaceuticals Group Has Been Performing

Recent times have been advantageous for Jacobio Pharmaceuticals Group as its revenues have been rising faster than most other companies. It seems the market expects this form will continue into the future, hence the elevated P/S ratio. However, if this isn't the case, investors might get caught out paying too much for the stock.

Keen to find out how analysts think Jacobio Pharmaceuticals Group's future stacks up against the industry? In that case, our free report is a great place to start.

How Is Jacobio Pharmaceuticals Group's Revenue Growth Trending?

In order to justify its P/S ratio, Jacobio Pharmaceuticals Group would need to produce outstanding growth that's well in excess of the industry.

If we review the last year of revenue growth, the company posted a terrific increase of 145%. However, the latest three year period hasn't been as great in aggregate as it didn't manage to provide any growth at all. So it appears to us that the company has had a mixed result in terms of growing revenue over that time.

Turning to the outlook, the next three years should generate growth of 2.2% per year as estimated by the lone analyst watching the company. Meanwhile, the rest of the industry is forecast to expand by 51% per annum, which is noticeably more attractive.

With this information, we find it concerning that Jacobio Pharmaceuticals Group is trading at a P/S higher than the industry. It seems most investors are hoping for a turnaround in the company's business prospects, but the analyst cohort is not so confident this will happen. There's a good chance these shareholders are setting themselves up for future disappointment if the P/S falls to levels more in line with the growth outlook.

The Key Takeaway

Jacobio Pharmaceuticals Group's P/S has grown nicely over the last month thanks to a handy boost in the share price. We'd say the price-to-sales ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

It comes as a surprise to see Jacobio Pharmaceuticals Group trade at such a high P/S given the revenue forecasts look less than stellar. Right now we aren't comfortable with the high P/S as the predicted future revenues aren't likely to support such positive sentiment for long. At these price levels, investors should remain cautious, particularly if things don't improve.

You should always think about risks. Case in point, we've spotted 1 warning sign for Jacobio Pharmaceuticals Group you should be aware of.

If these risks are making you reconsider your opinion on Jacobio Pharmaceuticals Group, explore our interactive list of high quality stocks to get an idea of what else is out there.

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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.