With Ocumension Therapeutics (HKG:1477) It Looks Like You'll Get What You Pay For

Ocumension Therapeutics' (HKG:1477) price-to-sales (or "P/S") ratio of 9.4x may look like a poor investment opportunity when you consider close to half the companies in the Pharmaceuticals industry in Hong Kong have P/S ratios below 1.4x. 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.

Check out our latest analysis for Ocumension Therapeutics

How Ocumension Therapeutics Has Been Performing

Recent times have been advantageous for Ocumension Therapeutics 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. If not, then existing shareholders might be a little nervous about the viability of the share price.

Want the full picture on analyst estimates for the company? Then our free report on Ocumension Therapeutics will help you uncover what's on the horizon.

Is There Enough Revenue Growth Forecasted For Ocumension Therapeutics?

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

Retrospectively, the last year delivered an exceptional 49% gain to the company's top line. Spectacularly, three year revenue growth has ballooned by several orders of magnitude, thanks in part to the last 12 months of revenue growth. Therefore, it's fair to say the revenue growth recently has been superb for the company.

Turning to the outlook, the next three years should generate growth of 76% per year as estimated by the three analysts watching the company. Meanwhile, the rest of the industry is forecast to only expand by 9.5% per annum, which is noticeably less attractive.

In light of this, it's understandable that Ocumension Therapeutics' P/S sits above the majority of other companies. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.

What We Can Learn From Ocumension Therapeutics' P/S?

Generally, our preference is to limit the use of the price-to-sales ratio to establishing what the market thinks about the overall health of a company.

As we suspected, our examination of Ocumension Therapeutics' 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.

Plus, you should also learn about this 1 warning sign we've spotted with Ocumension Therapeutics.

Of course, profitable companies with a history of great earnings growth are generally safer bets. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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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.