HLB Therapeutics Co.,Ltd.'s (KOSDAQ:115450) 36% Share Price Surge Not Quite Adding Up

Despite an already strong run, HLB Therapeutics Co.,Ltd. (KOSDAQ:115450) shares have been powering on, with a gain of 36% in the last thirty days. The annual gain comes to 237% following the latest surge, making investors sit up and take notice.

Since its price has surged higher, HLB TherapeuticsLtd may be sending strong sell signals at present with a price-to-sales (or "P/S") ratio of 19.9x, when you consider almost half of the companies in the Biotechs industry in Korea have P/S ratios under 10.6x and even P/S lower than 3x aren't out of the ordinary. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly elevated P/S.

See our latest analysis for HLB TherapeuticsLtd

How HLB TherapeuticsLtd Has Been Performing

HLB TherapeuticsLtd has been doing a good job lately as it's been growing revenue at a solid pace. One possibility is that the P/S ratio is high because investors think this respectable revenue growth will be enough to outperform the broader industry in the near future. However, if this isn't the case, investors might get caught out paying too much for the stock.

We don't have analyst forecasts, but you can see how recent trends are setting up the company for the future by checking out our free report on HLB TherapeuticsLtd's earnings, revenue and cash flow.

Is There Enough Revenue Growth Forecasted For HLB TherapeuticsLtd?

In order to justify its P/S ratio, HLB TherapeuticsLtd would need to produce outstanding growth that's well in excess of the industry.

Taking a look back first, we see that the company grew revenue by an impressive 25% last year. As a result, it also grew revenue by 19% in total over the last three years. So we can start by confirming that the company has actually done a good job of growing revenue over that time.

Comparing the recent medium-term revenue trends against the industry's one-year growth forecast of 47% shows it's noticeably less attractive.

With this information, we find it concerning that HLB TherapeuticsLtd is trading at a P/S higher than the industry. It seems most investors are ignoring the fairly limited recent growth rates and are hoping for a turnaround in the company's business prospects. Only the boldest would assume these prices are sustainable as a continuation of recent revenue trends is likely to weigh heavily on the share price eventually.

What Does HLB TherapeuticsLtd's P/S Mean For Investors?

Shares in HLB TherapeuticsLtd have seen a strong upwards swing lately, which has really helped boost its P/S figure. 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.

Our examination of HLB TherapeuticsLtd revealed its poor three-year revenue trends aren't detracting from the P/S as much as we though, given they look worse than current industry expectations. Right now we aren't comfortable with the high P/S as this revenue performance isn't likely to support such positive sentiment for long. Unless the recent medium-term conditions improve markedly, it's very challenging to accept these the share price as being reasonable.

Before you take the next step, you should know about the 2 warning signs for HLB TherapeuticsLtd that we have uncovered.

If strong companies turning a profit tickle your fancy, then you'll want to check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).

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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.