RemeGen Co., Ltd.'s (HKG:9995) Shares Climb 26% But Its Business Is Yet to Catch Up

Despite an already strong run, RemeGen Co., Ltd. (HKG:9995) shares have been powering on, with a gain of 26% in the last thirty days. The last 30 days were the cherry on top of the stock's 428% gain in the last year, which is nothing short of spectacular.

Even after such a large jump in price, you could still be forgiven for feeling indifferent about RemeGen's P/S ratio of 18.6x, since the median price-to-sales (or "P/S") ratio for the Biotechs industry in Hong Kong is also close to 16.9x. 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

How Has RemeGen Performed Recently?

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. If not, then existing shareholders may be a little nervous about the viability of the share price.

If you'd like to see what analysts are forecasting going forward, you should check out our free report on RemeGen.

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

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

Taking a look back first, we see that the company grew revenue by an impressive 54% last year. The latest three year period has also seen a 22% overall rise in revenue, aided extensively by its short-term performance. Therefore, it's fair to say the revenue growth recently has been respectable for the company.

Shifting to the future, estimates from the analysts covering the company suggest revenue should grow by 36% each year over the next three years. That's shaping up to be materially lower than the 342% per annum growth forecast for the broader industry.

In light of this, it's curious that RemeGen's P/S sits in line with the majority of other companies. Apparently many investors in the company are less bearish than analysts indicate and aren't willing to let go of their stock right now. These shareholders may be setting themselves up for future disappointment if the P/S falls to levels more in line with the growth outlook.

The Key Takeaway

RemeGen appears to be back in favour with a solid price jump bringing its P/S back in line with other companies in 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. When we see companies with a relatively weaker revenue outlook compared to the industry, we suspect the share price is at risk of declining, sending the moderate P/S lower. Circumstances like this present a risk to current and prospective investors who may see share prices fall if the low revenue growth impacts the sentiment.

We don't want to rain on the parade too much, but we did also find 1 warning sign for RemeGen that you need to be mindful of.

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.