The Price Is Right For Antengene Corporation Limited (HKG:6996) Even After Diving 26%

To the annoyance of some shareholders, Antengene Corporation Limited (HKG:6996) shares are down a considerable 26% in the last month, which continues a horrid run for the company. The recent drop completes a disastrous twelve months for shareholders, who are sitting on a 70% loss during that time.

Even after such a large drop in price, given around half the companies in Hong Kong's Pharmaceuticals industry have price-to-sales ratios (or "P/S") below 1.4x, you may still consider Antengene as a stock to avoid entirely with its 3.6x P/S ratio. 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 Antengene

How Antengene Has Been Performing

Recent times have been advantageous for Antengene as its revenues have been rising faster than most other companies. The P/S is probably high because investors think this strong revenue performance will continue. 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 Antengene.

How Is Antengene's Revenue Growth Trending?

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

Retrospectively, the last year delivered an exceptional 115% 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. So we can start by confirming that the company has done a tremendous job of growing revenue over that time.

Turning to the outlook, the next year should generate growth of 127% as estimated by the three analysts watching the company. That's shaping up to be materially higher than the 24% growth forecast for the broader industry.

With this in mind, it's not hard to understand why Antengene's P/S is high relative to its industry peers. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.

What Does Antengene's P/S Mean For Investors?

Antengene's shares may have suffered, but its P/S remains high. 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.

As we suspected, our examination of Antengene's analyst forecasts revealed that its superior revenue outlook is contributing to its high P/S. At this stage investors feel the potential for a deterioration in revenues is quite remote, justifying the elevated P/S ratio. It's hard to see the share price falling strongly in the near future under these circumstances.

Before you settle on your opinion, we've discovered 4 warning signs for Antengene that you should be aware of.

If you're unsure about the strength of Antengene'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.