There's No Escaping RemeGen Co., Ltd.'s (HKG:9995) Muted Revenues Despite A 25% Share Price Rise

Despite an already strong run, RemeGen Co., Ltd. (HKG:9995) shares have been powering on, with a gain of 25% in the last thirty days. Still, the 30-day jump doesn't change the fact that longer term shareholders have seen their stock decimated by the 59% share price drop in the last twelve months.

Even after such a large jump in price, RemeGen's price-to-sales (or "P/S") ratio of 5.9x 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 11.2x and even P/S above 48x are quite common. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/S.

View 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. Perhaps the market is expecting the current trend of poor revenue growth to continue, which has kept the P/S suppressed. If this is the case, then existing shareholders will probably struggle to get excited about the future direction of the share price.

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.

How Is RemeGen's Revenue Growth Trending?

There's an inherent assumption that a company should underperform the industry for P/S ratios like RemeGen's to be considered reasonable.

If we review the last year of revenue growth, the company posted a terrific increase of 57%. Spectacularly, three year revenue growth has ballooned by several orders of magnitude, thanks in part to the last 12 months of revenue growth. So we can start by confirming that the company has done a tremendous job of growing revenue over that time.

Shifting to the future, estimates from the analysts covering the company suggest revenue should grow by 37% each year over the next three years. With the industry predicted to deliver 53% growth each year, the company is positioned for a weaker revenue result.

With this in consideration, its clear as to why RemeGen's P/S is falling short industry peers. It seems most investors are expecting to see limited future growth and are only willing to pay a reduced amount for the stock.

The Key Takeaway

The latest share price surge wasn't enough to lift RemeGen's P/S close to the industry median. 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.

We've established that RemeGen maintains its low P/S on the weakness of its forecast growth being lower than the wider industry, as expected. 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.

You should always think about risks. Case in point, we've spotted 2 warning signs for RemeGen 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.