Optimistic Investors Push Innovent Biologics, Inc. (HKG:1801) Shares Up 25% But Growth Is Lacking

Despite an already strong run, Innovent Biologics, Inc. (HKG:1801) shares have been powering on, with a gain of 25% in the last thirty days. The last 30 days bring the annual gain to a very sharp 41%.

In spite of the firm bounce in price, there still wouldn't be many who think Innovent Biologics' price-to-sales (or "P/S") ratio of 8.2x is worth a mention when the median P/S in Hong Kong's Biotechs industry is similar at about 9.8x. While this might not raise any eyebrows, if the P/S ratio is not justified investors could be missing out on a potential opportunity or ignoring looming disappointment.

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Check out our latest analysis for Innovent Biologics

What Does Innovent Biologics' P/S Mean For Shareholders?

Innovent Biologics could be doing better as it's been growing revenue less than most other companies lately. Perhaps the market is expecting future revenue performance to lift, which has kept the P/S from declining. However, if this isn't the case, investors might get caught out paying too much for the stock.

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Innovent Biologics .

How Is Innovent Biologics' Revenue Growth Trending?

In order to justify its P/S ratio, Innovent Biologics would need to produce growth that's similar to the industry.

If we review the last year of revenue growth, the company posted a terrific increase of 52%. The strong recent performance means it was also able to grow revenue by 121% in total over the last three years. So we can start by confirming that the company has done a great job of growing revenue over that time.

Shifting to the future, estimates from the analysts covering the company suggest revenue should grow by 25% per year over the next three years. With the industry predicted to deliver 55% growth per annum, the company is positioned for a weaker revenue result.

With this information, we find it interesting that Innovent Biologics is trading at a fairly similar P/S compared to the industry. Apparently many investors in the company are less bearish than analysts indicate and aren't willing to let go of their stock right now. These shareholders may be setting themselves up for future disappointment if the P/S falls to levels more in line with the growth outlook.

The Bottom Line On Innovent Biologics' P/S

Innovent Biologics' stock has a lot of momentum behind it lately, which has brought its P/S level with the rest of the industry. 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.

Our look at the analysts forecasts of Innovent Biologics' revenue prospects has shown that its inferior revenue outlook isn't negatively impacting its P/S as much as we would have predicted. At present, we aren't confident in the P/S as the predicted future revenues aren't likely to support a more positive sentiment for long. This places shareholders' investments at risk and potential investors in danger of paying an unnecessary premium.

The company's balance sheet is another key area for risk analysis. Take a look at our free balance sheet analysis for Innovent Biologics with six simple checks on some of these key factors.

If you're unsure about the strength of Innovent Biologics' business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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