Subdued Growth No Barrier To Tango Therapeutics, Inc. (NASDAQ:TNGX) With Shares Advancing 32%

Despite an already strong run, Tango Therapeutics, Inc. (NASDAQ:TNGX) shares have been powering on, with a gain of 32% in the last thirty days. The last month tops off a massive increase of 192% in the last year.

Since its price has surged higher, Tango Therapeutics may be sending strong sell signals at present with a price-to-sales (or "P/S") ratio of 20x, when you consider almost half of the companies in the Biotechs industry in the United States have P/S ratios under 12.1x and even P/S lower than 4x aren't out of the ordinary. However, the P/S might be quite high for a reason and it requires further investigation to determine if it's justified.

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Check out our latest analysis for Tango Therapeutics

How Tango Therapeutics Has Been Performing

Tango Therapeutics could be doing better as it's been growing revenue less than most other companies lately. Perhaps the market is expecting future revenue performance to undergo a reversal of fortunes, which has elevated the P/S ratio. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

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.

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

Tango Therapeutics' P/S ratio would be typical for a company that's expected to deliver very strong growth, and importantly, perform much better than the industry.

If we review the last year of revenue growth, the company posted a terrific increase of 53%. The latest three year period has also seen an excellent 175% 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.

Turning to the outlook, the next three years should generate growth of 0.3% per annum as estimated by the nine analysts watching the company. With the industry predicted to deliver 128% growth per annum, the company is positioned for a weaker revenue result.

With this information, we find it concerning that Tango Therapeutics is trading at a P/S higher than the industry. It seems most investors are hoping for a turnaround in the company's business prospects, but the analyst cohort is not so confident this will happen. There's a good chance these shareholders are setting themselves up for future disappointment if the P/S falls to levels more in line with the growth outlook.

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

Shares in Tango Therapeutics have seen a strong upwards swing lately, which has really helped boost its P/S figure. We'd say the price-to-sales ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

It comes as a surprise to see Tango Therapeutics trade at such a high P/S given the revenue forecasts look less than stellar. 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.

We don't want to rain on the parade too much, but we did also find 4 warning signs for Tango Therapeutics (1 is potentially serious!) that you need to be mindful of.

If these risks are making you reconsider your opinion on Tango Therapeutics, explore our interactive list of high quality stocks to get an idea of what else is out there.

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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.