Tango Therapeutics, Inc.'s (NASDAQ:TNGX) Share Price Could Signal Some Risk

You may think that with a price-to-sales (or "P/S") ratio of 25x Tango Therapeutics, Inc. (NASDAQ:TNGX) is a stock to avoid completely, seeing as almost half of all the Biotechs companies in the United States have P/S ratios under 12.6x 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.

See our latest analysis for Tango Therapeutics

How Has Tango Therapeutics Performed Recently?

With revenue growth that's superior to most other companies of late, Tango Therapeutics has been doing relatively well. The P/S is probably high because investors think this strong revenue performance will continue. However, if this isn't the case, investors might get caught out paying too much for the stock.

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Tango Therapeutics.

Is There Enough Revenue Growth Forecasted For Tango Therapeutics?

The only time you'd be truly comfortable seeing a P/S as steep as Tango Therapeutics' is when the company's growth is on track to outshine the industry decidedly.

If we review the last year of revenue growth, the company posted a terrific increase of 55%. This great performance means it was also able to deliver immense revenue growth over the last three years. Accordingly, shareholders would have been over the moon with those medium-term rates of revenue growth.

Turning to the outlook, the next three years should generate growth of 6.2% per annum as estimated by the six analysts watching the company. Meanwhile, the rest of the industry is forecast to expand by 240% per year, which is noticeably more attractive.

With this information, we find it concerning that Tango Therapeutics is trading at a P/S higher than the industry. 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. 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?

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.

Despite analysts forecasting some poorer-than-industry revenue growth figures for Tango Therapeutics, this doesn't appear to be impacting the P/S in the slightest. Right now we aren't comfortable with the high P/S as the predicted future revenues aren't likely to support such positive sentiment for long. This places shareholders' investments at significant risk and potential investors in danger of paying an excessive premium.

We don't want to rain on the parade too much, but we did also find 3 warning signs for Tango Therapeutics that you need to be mindful of.

If you're unsure about the strength of Tango Therapeutics' 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.