Further Upside For Together Pharma Ltd (TLV:TGTR) Shares Could Introduce Price Risks After 49% Bounce

Together Pharma Ltd (TLV:TGTR) shares have continued their recent momentum with a 49% gain in the last month alone. The annual gain comes to 153% following the latest surge, making investors sit up and take notice.

Even after such a large jump in price, Together Pharma's price-to-sales (or "P/S") ratio of 0.7x might still make it look like a buy right now compared to the Interactive Media and Services industry in Israel, where around half of the companies have P/S ratios above 2.3x and even P/S above 5x are quite common. However, the P/S might be low for a reason and it requires further investigation to determine if it's justified.

Check out our latest analysis for Together Pharma

How Has Together Pharma Performed Recently?

With revenue growth that's exceedingly strong of late, Together Pharma has been doing very well. Perhaps the market is expecting future revenue performance to dwindle, which has kept the P/S suppressed. If that doesn't eventuate, then existing shareholders have reason to be quite optimistic about the future direction of the share price.

Although there are no analyst estimates available for Together Pharma, take a look at this free data-rich visualisation to see how the company stacks up on earnings, revenue and cash flow.

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 Together Pharma's is when the company's growth is on track to lag the industry.

Taking a look back first, we see that the company grew revenue by an impressive 191% last year. The latest three year period has also seen an incredible overall rise in revenue, aided by its incredible short-term performance. Accordingly, shareholders would have been over the moon with those medium-term rates of revenue growth.

Comparing that to the industry, which is only predicted to deliver 10% growth in the next 12 months, the company's momentum is stronger based on recent medium-term annualised revenue results.

With this information, we find it odd that Together Pharma is trading at a P/S lower than the industry. It looks like most investors are not convinced the company can maintain its recent growth rates.

What Does Together Pharma's P/S Mean For Investors?

Despite Together Pharma's share price climbing recently, its P/S still lags most other companies. 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're very surprised to see Together Pharma currently trading on a much lower than expected P/S since its recent three-year growth is higher than the wider industry forecast. When we see robust revenue growth that outpaces the industry, we presume that there are notable underlying risks to the company's future performance, which is exerting downward pressure on the P/S ratio. At least price risks look to be very low if recent medium-term revenue trends continue, but investors seem to think future revenue could see a lot of volatility.

Plus, you should also learn about these 3 warning signs we've spotted with Together Pharma (including 2 which are a bit concerning).

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.