HBM Holdings Limited (HKG:2142) Stock Catapults 78% Though Its Price And Business Still Lag The Industry

Despite an already strong run, HBM Holdings Limited (HKG:2142) shares have been powering on, with a gain of 78% in the last thirty days. The annual gain comes to 219% following the latest surge, making investors sit up and take notice.

Even after such a large jump in price, HBM Holdings may still be sending buy signals at present with its price-to-sales (or "P/S") ratio of 6.9x, considering almost half of all companies in the Biotechs industry in Hong Kong have P/S ratios greater than 10.3x and even P/S higher than 50x aren't out of the ordinary. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/S.

See our latest analysis for HBM Holdings

How HBM Holdings Has Been Performing

Recent times have been quite advantageous for HBM Holdings as its revenue has been rising very briskly. 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.

We don't have analyst forecasts, but you can see how recent trends are setting up the company for the future by checking out our free report on HBM Holdings' earnings, revenue and cash flow.

Is There Any Revenue Growth Forecasted For HBM Holdings?

The only time you'd be truly comfortable seeing a P/S as low as HBM Holdings' is when the company's growth is on track to lag the industry.

Retrospectively, the last year delivered an exceptional 34% gain to the company's top line. This great performance means it was also able to deliver immense revenue growth over the last three years. 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 166% over the next year, materially higher than the company's recent medium-term annualised growth rates.

In light of this, it's understandable that HBM Holdings' P/S sits below the majority of other companies. It seems most investors are expecting to see the recent limited growth rates continue into the future and are only willing to pay a reduced amount for the stock.

What We Can Learn From HBM Holdings' P/S?

Despite HBM Holdings' share price climbing recently, its P/S still lags most other companies. 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.

In line with expectations, HBM Holdings maintains its low P/S on the weakness of its recent three-year growth being lower than the wider industry forecast. At this stage investors feel the potential for an improvement in revenue isn't great enough to justify a higher P/S ratio. If recent medium-term revenue trends continue, it's hard to see the share price experience a reversal of fortunes anytime soon.

You always need to take note of risks, for example - HBM Holdings has 2 warning signs we think you should be aware of.

If companies with solid past earnings growth is up your alley, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

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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.