Improved Revenues Required Before RemeGen Co., Ltd. (HKG:9995) Stock's 31% Jump Looks Justified

Those holding RemeGen Co., Ltd. (HKG:9995) shares would be relieved that the share price has rebounded 31% in the last thirty days, but it needs to keep going to repair the recent damage it has caused to investor portfolios. Still, the 30-day jump doesn't change the fact that longer term shareholders have seen their stock decimated by the 62% share price drop in the last twelve months.

In spite of the firm bounce in price, RemeGen's price-to-sales (or "P/S") ratio of 5.3x might still make it look like a buy right now compared to the Biotechs industry in Hong Kong, where around half of the companies have P/S ratios above 9.2x and even P/S above 54x are quite common. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's limited.

See our latest analysis for RemeGen

How RemeGen Has Been Performing

RemeGen could be doing better as it's been growing revenue less than most other companies lately. It seems that many are expecting the uninspiring revenue performance to persist, which has repressed the growth of the P/S ratio. If you still like the company, you'd be hoping revenue doesn't get any worse and that you could pick up some stock while it's out of favour.

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

What Are Revenue Growth Metrics Telling Us About The Low P/S?

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

If we review the last year of revenue growth, the company posted a terrific increase of 66%. The latest three year period has also seen an incredible overall rise in revenue, aided by its incredible short-term performance. Therefore, it's fair to say the revenue growth recently has been superb for the company.

Shifting to the future, estimates from the analysts covering the company suggest revenue should grow by 39% per annum over the next three years. Meanwhile, the rest of the industry is forecast to expand by 51% per annum, which is noticeably more attractive.

With this information, we can see why RemeGen is trading at a P/S lower than the industry. Apparently many shareholders weren't comfortable holding on while the company is potentially eyeing a less prosperous future.

What We Can Learn From RemeGen's P/S?

The latest share price surge wasn't enough to lift RemeGen's P/S close to the industry median. 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 expected, our analysis of RemeGen's analyst forecasts confirms that the company's underwhelming revenue outlook is a major contributor to its low P/S. Right now shareholders are accepting the low P/S as they concede future revenue probably won't provide any pleasant surprises. The company will need a change of fortune to justify the P/S rising higher in the future.

Plus, you should also learn about these 2 warning signs we've spotted with RemeGen (including 1 which makes us a bit uncomfortable).

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.