What Akeso, Inc.'s (HKG:9926) 31% Share Price Gain Is Not Telling You

Akeso, Inc. (HKG:9926) shares have had a really impressive month, gaining 31% after a shaky period beforehand. The last month tops off a massive increase of 191% in the last year.

Following the firm bounce in price, Akeso may be sending very bearish signals at the moment with a price-to-sales (or "P/S") ratio of 40.9x, since almost half of all companies in the Biotechs industry in Hong Kong have P/S ratios under 12.7x and even P/S lower than 5x 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.

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See our latest analysis for Akeso

What Does Akeso's Recent Performance Look Like?

While the industry has experienced revenue growth lately, Akeso's revenue has gone into reverse gear, which is not great. Perhaps the market is expecting the poor revenue to reverse, justifying it's current high P/S.. However, if this isn't the case, investors might get caught out paying too much for the stock.

How Is Akeso's Revenue Growth Trending?

In order to justify its P/S ratio, Akeso would need to produce outstanding growth that's well in excess of the industry.

Retrospectively, the last year delivered a frustrating 53% decrease to the company's top line. Spectacularly, three year revenue growth has ballooned by several orders of magnitude, despite the drawbacks experienced in the last 12 months. So while the company has done a great job in the past, it's somewhat concerning to see revenue growth decline so harshly.

Shifting to the future, estimates from the analysts covering the company suggest revenue should grow by 55% each year over the next three years. With the industry predicted to deliver 386% growth per year, the company is positioned for a weaker revenue result.

With this information, we find it concerning that Akeso 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 Akeso 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 Akeso currently trades on a much higher than expected P/S since its forecast growth is lower than the wider industry. The weakness in the company's revenue estimate doesn't bode well for the elevated P/S, which could take a fall if the revenue sentiment doesn't improve. This places shareholders' investments at significant risk and potential investors in danger of paying an excessive premium.

It is also worth noting that we have found 1 warning sign for Akeso that you need to take into consideration.

If these risks are making you reconsider your opinion on Akeso, 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.