Why Investors Shouldn't Be Surprised By ImmuneOnco Biopharmaceuticals (Shanghai) Inc.'s (HKG:1541) 27% Share Price Surge

ImmuneOnco Biopharmaceuticals (Shanghai) Inc. (HKG:1541) shares have continued their recent momentum with a 27% gain in the last month alone. But the last month did very little to improve the 55% share price decline over the last year.

After such a large jump in price, ImmuneOnco Biopharmaceuticals (Shanghai)'s price-to-sales (or "P/S") ratio of 33.5x 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 10.9x and even P/S below 4x are quite common. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly elevated P/S.

See our latest analysis for ImmuneOnco Biopharmaceuticals (Shanghai)

What Does ImmuneOnco Biopharmaceuticals (Shanghai)'s Recent Performance Look Like?

ImmuneOnco Biopharmaceuticals (Shanghai) certainly has been doing a great job lately as it's been growing its revenue at a really rapid pace. It seems that many are expecting the strong revenue performance to beat most other companies over the coming period, which has increased investors’ willingness to pay up for the stock. If not, then existing shareholders might be a little nervous about the viability of the share price.

Although there are no analyst estimates available for ImmuneOnco Biopharmaceuticals (Shanghai), take a look at this free data-rich visualisation to see how the company stacks up on earnings, revenue and cash flow.

How Is ImmuneOnco Biopharmaceuticals (Shanghai)'s Revenue Growth Trending?

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

Retrospectively, the last year delivered an explosive gain to the company's top line. Spectacularly, three year revenue growth has also set the world alight, thanks to the last 12 months of incredible growth. Accordingly, shareholders would have been over the moon with those medium-term rates of revenue growth.

This is in contrast to the rest of the industry, which is expected to grow by 58% over the next year, materially lower than the company's recent medium-term annualised growth rates.

With this information, we can see why ImmuneOnco Biopharmaceuticals (Shanghai) is trading at such a high P/S compared to the industry. It seems most investors are expecting this strong growth to continue and are willing to pay more for the stock.

The Final Word

Shares in ImmuneOnco Biopharmaceuticals (Shanghai) have seen a strong upwards swing lately, which has really helped boost its P/S figure. Using the price-to-sales ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

As we suspected, our examination of ImmuneOnco Biopharmaceuticals (Shanghai) revealed its three-year revenue trends are contributing to its high P/S, given they look better than current industry expectations. In the eyes of shareholders, the probability of a continued growth trajectory is great enough to prevent the P/S from pulling back. Unless the recent medium-term conditions change, they will continue to provide strong support to the share price.

Having said that, be aware ImmuneOnco Biopharmaceuticals (Shanghai) is showing 1 warning sign in our investment analysis, you should know about.

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.