Akeso, Inc. (HKG:9926) May Have Run Too Fast Too Soon With Recent 26% Price Plummet

Akeso, Inc. (HKG:9926) shares have retraced a considerable 26% in the last month, reversing a fair amount of their solid recent performance. Of course, over the longer-term many would still wish they owned shares as the stock's price has soared 108% in the last twelve months.

Even after such a large drop in price, Akeso may still be sending strong sell signals at present with a price-to-sales (or "P/S") ratio of 44x, when you consider almost half of the companies in the Biotechs industry in Hong Kong have P/S ratios under 18x and even P/S lower than 7x 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 highly elevated P/S.

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View our latest analysis for Akeso

What Does Akeso's P/S Mean For Shareholders?

Akeso 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 undergo a reversal of fortunes, which has elevated the P/S ratio. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

Keen to find out how analysts think Akeso's future stacks up against the industry? In that case, our free report is a great place to start.

How Is Akeso's Revenue Growth Trending?

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

Retrospectively, the last year delivered an exceptional 34% 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. Accordingly, shareholders would have been over the moon with those medium-term rates of revenue growth.

Shifting to the future, estimates from the analysts covering the company suggest revenue should grow by 59% each year over the next three years. Meanwhile, the rest of the industry is forecast to expand by 60% each year, which is not materially different.

In light of this, it's curious that Akeso's P/S sits above the majority of other companies. It seems most investors are ignoring the fairly average growth expectations and are willing to pay up for exposure to the stock. These shareholders may be setting themselves up for disappointment if the P/S falls to levels more in line with the growth outlook.

The Final Word

A significant share price dive has done very little to deflate Akeso's very lofty P/S. We'd say the price-to-sales ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

Analysts are forecasting Akeso's revenues to only grow on par with the rest of the industry, which has lead to the high P/S ratio being unexpected. When we see revenue growth that just matches the industry, we don't expect elevates P/S figures to remain inflated for the long-term. Unless the company can jump ahead of the rest of the industry in the short-term, it'll be a challenge to maintain the share price at current levels.

It is also worth noting that we have found 1 warning sign for Akeso that you need to take into consideration.

It's important to make sure you look for a great company, not just the first idea you come across. So if growing profitability aligns with your idea of a great company, take a peek at this free list of interesting companies with strong recent earnings growth (and a low P/E).

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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.