Akeso, Inc.'s (HKG:9926) Shares Climb 29% But Its Business Is Yet to Catch Up

Akeso, Inc. (HKG:9926) shareholders have had their patience rewarded with a 29% share price jump in the last month. The last 30 days bring the annual gain to a very sharp 67%.

After such a large jump in price, Akeso may be sending very bearish signals at the moment with a price-to-sales (or "P/S") ratio of 32.9x, since almost half of all companies in the Biotechs industry in Hong Kong have P/S ratios under 10.7x and even P/S lower than 4x are not unusual. However, the P/S might be quite high for a reason and it requires further investigation to determine if it's justified.

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View our latest analysis for Akeso

What Does Akeso's Recent Performance Look Like?

While the industry has experienced revenue growth lately, Akeso's revenue has gone into reverse gear, which is not great. It might be that many expect the dour revenue performance to recover substantially, which has kept the P/S from collapsing. 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 Akeso.

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.

Taking a look back first, the company's revenue growth last year wasn't something to get excited about as it posted a disappointing decline of 53%. The latest three year period has seen an incredible overall rise in revenue, a stark contrast to the last 12 months. So while the company has done a great job in the past, it's somewhat concerning to see revenue growth decline so harshly.

Shifting to the future, estimates from the analysts covering the company suggest revenue should grow by 55% per year over the next three years. Meanwhile, the rest of the industry is forecast to expand by 51% per year, which is not materially different.

With this in consideration, we find it intriguing that Akeso's P/S is higher than its industry peers. 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 Bottom Line On Akeso's P/S

The strong share price surge has lead to Akeso's P/S soaring as well. Typically, we'd caution against reading too much into price-to-sales ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

Seeing as its revenues are forecast to grow in line with the wider industry, it would appear that Akeso currently trades on a higher than expected P/S. 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.

Plus, you should also learn about this 1 warning sign we've spotted with Akeso.

Of course, profitable companies with a history of great earnings growth are generally safer bets. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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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.