RemeGen Co., Ltd.'s (HKG:9995) 28% Price Boost Is Out Of Tune With Revenues

Despite an already strong run, RemeGen Co., Ltd. (HKG:9995) shares have been powering on, with a gain of 28% in the last thirty days. The last 30 days bring the annual gain to a very sharp 85%.

Even after such a large jump in price, there still wouldn't be many who think RemeGen's price-to-sales (or "P/S") ratio of 12.8x is worth a mention when the median P/S in Hong Kong's Biotechs industry is similar at about 12.7x. Although, it's not wise to simply ignore the P/S without explanation as investors may be disregarding a distinct opportunity or a costly mistake.

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Check out our latest analysis for RemeGen

What Does RemeGen's Recent Performance Look Like?

RemeGen could be doing better as it's been growing revenue less than most other companies lately. It might be that many expect the uninspiring revenue performance to strengthen positively, which has kept the P/S ratio from falling. You'd really hope so, otherwise you're paying a relatively elevated price for a company with this sort of growth profile.

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How Is RemeGen's Revenue Growth Trending?

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

Retrospectively, the last year delivered an exceptional 54% gain to the company's top line. As a result, it also grew revenue by 22% in total over the last three years. Therefore, it's fair to say the revenue growth recently has been respectable for the company.

Turning to the outlook, the next three years should generate growth of 34% per year as estimated by the analysts watching the company. Meanwhile, the rest of the industry is forecast to expand by 399% per annum, which is noticeably more attractive.

In light of this, it's curious that RemeGen's P/S sits in line with the majority of other companies. It seems most investors are ignoring the fairly limited growth expectations and are willing to pay up for exposure to the stock. Maintaining these prices will be difficult to achieve as this level of revenue growth is likely to weigh down the shares eventually.

The Bottom Line On RemeGen's P/S

RemeGen's stock has a lot of momentum behind it lately, which has brought its P/S level with the rest of the industry. 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.

Our look at the analysts forecasts of RemeGen's revenue prospects has shown that its inferior revenue outlook isn't negatively impacting its P/S as much as we would have predicted. At present, we aren't confident in the P/S as the predicted future revenues aren't likely to support a more positive sentiment for long. This places shareholders' investments at risk and potential investors in danger of paying an unnecessary premium.

You always need to take note of risks, for example - RemeGen has 1 warning sign we think you should be aware of.

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.