Subdued Growth No Barrier To Tango Therapeutics, Inc. (NASDAQ:TNGX) With Shares Advancing 27%

Tango Therapeutics, Inc. (NASDAQ:TNGX) shares have had a really impressive month, gaining 27% after a shaky period beforehand. The annual gain comes to 158% following the latest surge, making investors sit up and take notice.

Since its price has surged higher, Tango Therapeutics may be sending very bearish signals at the moment with a price-to-sales (or "P/S") ratio of 24.6x, since almost half of all companies in the Biotechs industry in the United States have P/S ratios under 11x and even P/S lower than 4x are not unusual. 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.

View our latest analysis for Tango Therapeutics

What Does Tango Therapeutics' P/S Mean For Shareholders?

With revenue growth that's inferior to most other companies of late, Tango Therapeutics has been relatively sluggish. Perhaps the market is expecting future revenue performance to undergo a reversal of fortunes, which has elevated the P/S ratio. If not, then existing shareholders may be very nervous about the viability of the share price.

Keen to find out how analysts think Tango Therapeutics' future stacks up against the industry? In that case, our free report is a great place to start.

Is There Enough Revenue Growth Forecasted For Tango Therapeutics?

In order to justify its P/S ratio, Tango Therapeutics 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 50% last year. The latest three year period has also seen an excellent 299% overall rise in revenue, aided by its short-term performance. Therefore, it's fair to say the revenue growth recently has been superb for the company.

Shifting to the future, estimates from the eight analysts covering the company suggest revenue should grow by 5.8% per year over the next three years. Meanwhile, the rest of the industry is forecast to expand by 199% each year, which is noticeably more attractive.

With this in consideration, we believe it doesn't make sense that Tango Therapeutics' P/S is outpacing its industry peers. Apparently many investors in the company are way more bullish than analysts indicate and aren't willing to let go of their stock at any price. Only the boldest would assume these prices are sustainable as this level of revenue growth is likely to weigh heavily on the share price eventually.

What We Can Learn From Tango Therapeutics' P/S?

Tango Therapeutics' P/S has grown nicely over the last month thanks to a handy boost in the share price. 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 concluded that Tango Therapeutics currently trades on a much higher than expected P/S since its forecast growth is lower than the wider industry. When we see a weak revenue outlook, we suspect the share price faces a much greater risk of declining, bringing back down the P/S figures. At these price levels, investors should remain cautious, particularly if things don't improve.

There are also other vital risk factors to consider and we've discovered 3 warning signs for Tango Therapeutics (1 can't be ignored!) that you should be aware of before investing here.

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com