There's Reason For Concern Over HLB Therapeutics Co.,Ltd.'s (KOSDAQ:115450) Massive 50% Price Jump

Despite an already strong run, HLB Therapeutics Co.,Ltd. (KOSDAQ:115450) shares have been powering on, with a gain of 50% in the last thirty days. Looking back a bit further, it's encouraging to see the stock is up 49% in the last year.

Even after such a large jump in price, you could still be forgiven for feeling indifferent about HLB TherapeuticsLtd's P/S ratio of 11.8x, since the median price-to-sales (or "P/S") ratio for the Biotechs industry in Korea is also close to 10.9x. 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.

View our latest analysis for HLB TherapeuticsLtd

How Has HLB TherapeuticsLtd Performed Recently?

The revenue growth achieved at HLB TherapeuticsLtd over the last year would be more than acceptable for most companies. It might be that many expect the respectable revenue performance to wane, which has kept the P/S from rising. If that doesn't eventuate, then existing shareholders probably aren't too pessimistic about the future direction 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.

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

The only time you'd be comfortable seeing a P/S like HLB TherapeuticsLtd's is when the company's growth is tracking the industry closely.

Retrospectively, the last year delivered a decent 7.8% gain to the company's revenues. The latest three year period has also seen a 7.0% overall rise in revenue, aided somewhat by its short-term performance. So we can start by confirming that the company has actually done a good job of growing revenue over that time.

This is in contrast to the rest of the industry, which is expected to grow by 43% over the next year, materially higher than the company's recent medium-term annualised growth rates.

With this in mind, we find it intriguing that HLB TherapeuticsLtd's P/S is comparable to that of its industry peers. It seems most investors are ignoring the fairly limited recent growth rates and are willing to pay up for exposure to the stock. They may be setting themselves up for future disappointment if the P/S falls to levels more in line with recent growth rates.

What We Can Learn From HLB TherapeuticsLtd's P/S?

HLB TherapeuticsLtd's stock has a lot of momentum behind it lately, which has brought its P/S level with the rest of the industry. Using the price-to-sales ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

We've established that HLB TherapeuticsLtd's average P/S is a bit surprising since its recent three-year growth is lower than the wider industry forecast. When we see weak revenue with slower than industry growth, we suspect the share price is at risk of declining, bringing the P/S back in line with expectations. Unless the recent medium-term conditions improve, it's hard to accept the current share price as fair value.

You need to take note of risks, for example - HLB TherapeuticsLtd has 3 warning signs (and 2 which are a bit concerning) we think you should know about.

If you're unsure about the strength of HLB TherapeuticsLtd's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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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.