What Tango Therapeutics, Inc.'s (NASDAQ:TNGX) 29% Share Price Gain Is Not Telling You

Tango Therapeutics, Inc. (NASDAQ:TNGX) shares have continued their recent momentum with a 29% gain in the last month alone. Looking back a bit further, it's encouraging to see the stock is up 65% in the last year.

After such a large jump in price, Tango Therapeutics may be sending very bearish signals at the moment with a price-to-sales (or "P/S") ratio of 29.8x, since almost half of all companies in the Biotechs industry in the United States have P/S ratios under 12.4x and even P/S lower than 4x are not unusual. However, the P/S might be quite high for a reason and it requires further investigation to determine if it's justified.

Check out our latest analysis for Tango Therapeutics

How Has Tango Therapeutics Performed Recently?

With revenue growth that's inferior to most other companies of late, Tango Therapeutics has been relatively sluggish. One possibility is that the P/S ratio is high because investors think this lacklustre revenue performance will improve markedly. 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.

How Is Tango Therapeutics' Revenue Growth Trending?

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.

Retrospectively, the last year delivered an exceptional 26% gain to the company's top line. Pleasingly, revenue has also lifted 90% in aggregate from three years ago, thanks to the last 12 months of growth. Accordingly, shareholders would have definitely welcomed those medium-term rates of revenue growth.

Looking ahead now, revenue is anticipated to climb by 9.2% per year during the coming three years according to the nine analysts following the company. Meanwhile, the rest of the industry is forecast to expand by 138% each 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. 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.

The Key Takeaway

Shares in Tango Therapeutics have seen a strong upwards swing lately, which has really helped boost its P/S figure. Typically, we'd caution against reading too much into price-to-sales ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

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. Unless these conditions improve markedly, it's very challenging to accept these prices as being reasonable.

It is also worth noting that we have found 3 warning signs for Tango Therapeutics (1 is a bit unpleasant!) that you need to take into consideration.

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.