There's Reason For Concern Over Abbisko Cayman Limited's (HKG:2256) Massive 60% Price Jump

The Abbisko Cayman Limited (HKG:2256) share price has done very well over the last month, posting an excellent gain of 60%. The last month tops off a massive increase of 185% in the last year.

Although its price has surged higher, you could still be forgiven for feeling indifferent about Abbisko Cayman's P/S ratio of 8.9x, since the median price-to-sales (or "P/S") ratio for the Biotechs industry in Hong Kong is also close to 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.

See our latest analysis for Abbisko Cayman

What Does Abbisko Cayman's Recent Performance Look Like?

With revenue growth that's superior to most other companies of late, Abbisko Cayman has been doing relatively well. One possibility is that the P/S ratio is moderate because investors think this strong revenue performance might be about to tail off. If the company manages to stay the course, then investors should be rewarded with a share price that matches its revenue figures.

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

Is There Some Revenue Growth Forecasted For Abbisko Cayman?

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

Retrospectively, the last year delivered an explosive gain to the company's top line. The latest three year period has also seen an incredible overall rise in revenue, aided by its incredible short-term performance. So we can start by confirming that the company has done a tremendous job of growing revenue over that time.

Looking ahead now, revenue is anticipated to slump, contracting by 6.2% per year during the coming three years according to the four analysts following the company. Meanwhile, the broader industry is forecast to expand by 53% per annum, which paints a poor picture.

With this in consideration, we think it doesn't make sense that Abbisko Cayman's P/S is closely matching its industry peers. Apparently many investors in the company reject the analyst cohort's pessimism and aren't willing to let go of their stock right now. Only the boldest would assume these prices are sustainable as these declining revenues are likely to weigh on the share price eventually.

What We Can Learn From Abbisko Cayman's P/S?

Its shares have lifted substantially and now Abbisko Cayman's P/S is back within range of the industry median. It's argued the price-to-sales ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

Our check of Abbisko Cayman's analyst forecasts revealed that its outlook for shrinking revenue isn't bringing down its P/S as much as we would have predicted. When we see a gloomy outlook like this, our immediate thoughts are that the share price is at risk of declining, negatively impacting P/S. If the poor revenue outlook tells us one thing, it's that these current price levels could be unsustainable.

Don't forget that there may be other risks. For instance, we've identified 1 warning sign for Abbisko Cayman that you should be aware of.

If you're unsure about the strength of Abbisko Cayman's 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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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.