HLB Therapeutics Co.,Ltd.'s (KOSDAQ:115450) Shares Climb 36% But Its Business Is Yet to Catch Up

HLB Therapeutics Co.,Ltd. (KOSDAQ:115450) shares have had a really impressive month, gaining 36% after a shaky period beforehand. The last month tops off a massive increase of 222% in the last year.

After such a large jump in price, HLB TherapeuticsLtd may be sending strong sell signals at present with a price-to-sales (or "P/S") ratio of 14.8x, when you consider almost half of the companies in the Biotechs industry in Korea have P/S ratios under 8.8x and even P/S lower than 2x aren't out of the ordinary. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's so lofty.

Check out our latest analysis for HLB TherapeuticsLtd

How HLB TherapeuticsLtd Has Been Performing

The revenue growth achieved at HLB TherapeuticsLtd over the last year would be more than acceptable for most companies. 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. If not, then existing shareholders may be a little nervous about the viability of the share price.

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.

Retrospectively, the last year delivered an exceptional 22% gain to the company's top line. The strong recent performance means it was also able to grow revenue by 53% in total over the last three years. Accordingly, shareholders would have definitely welcomed those medium-term rates of revenue growth.

Comparing the recent medium-term revenue trends against the industry's one-year growth forecast of 37% shows it's noticeably less attractive.

With this in mind, we find it worrying that HLB TherapeuticsLtd's P/S exceeds that of its industry peers. 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 We Can Learn From HLB TherapeuticsLtd's P/S?

The strong share price surge has lead to HLB TherapeuticsLtd's P/S soaring as well. It's argued the price-to-sales ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

The fact that HLB TherapeuticsLtd currently trades on a higher P/S relative to the industry is an oddity, since its recent three-year growth is lower than the wider industry forecast. When we see slower than industry revenue growth but an elevated P/S, there's considerable risk of the share price declining, sending the P/S lower. Unless the recent medium-term conditions improve markedly, it's very challenging to accept these the share price as being reasonable.

It is also worth noting that we have found 2 warning signs for HLB TherapeuticsLtd that you need to take into consideration.

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.