HBM Holdings Limited (HKG:2142) shares have had a really impressive month, gaining 34% after a shaky period beforehand. Notwithstanding the latest gain, the annual share price return of 4.2% isn't as impressive.

Although its price has surged higher, HBM Holdings' price-to-sales (or "P/S") ratio of 2x might still make it look like a strong buy right now compared to the wider Biotechs industry in Hong Kong, where around half of the companies have P/S ratios above 11.8x and even P/S above 56x are quite common. However, the P/S might be quite low for a reason and it requires further investigation to determine if it's justified.

How HBM Holdings Has Been Performing

Recent times have been quite advantageous for HBM Holdings as its revenue has been rising very briskly. Perhaps the market is expecting future revenue performance to dwindle, which has kept the P/S suppressed. If that doesn't eventuate, then existing shareholders have reason to be quite optimistic about the future direction of the share price.

Is There Any Revenue Growth Forecasted For HBM Holdings?

In order to justify its P/S ratio, HBM Holdings would need to produce anemic growth that's substantially trailing the industry.

Retrospectively, the last year delivered an exceptional 34% gain to the company's top line. Spectacularly, three year revenue growth has ballooned by several orders of magnitude, thanks in part to the last 12 months of revenue growth. Accordingly, shareholders would have been over the moon with those medium-term rates of revenue growth.

This is in contrast to the rest of the industry, which is expected to grow by 83% over the next year, materially lower than the company's recent medium-term annualised growth rates.

With this information, we find it odd that HBM Holdings is trading at a P/S lower than the industry. It looks like most investors are not convinced the company can maintain its recent growth rates.

What Does HBM Holdings' P/S Mean For Investors?

Even after such a strong price move, HBM Holdings' P/S still trails the rest of the industry. Generally, our preference is to limit the use of the price-to-sales ratio to establishing what the market thinks about the overall health of a company.

We're very surprised to see HBM Holdings currently trading on a much lower than expected P/S since its recent three-year growth is higher than the wider industry forecast. When we see strong revenue with faster-than-industry growth, we assume there are some significant underlying risks to the company's ability to make money which is applying downwards pressure on the P/S ratio. It appears many are indeed anticipating revenue instability, because the persistence of these recent medium-term conditions would normally provide a boost to the share price.

Having said that, be aware HBM Holdings is showing 1 warning sign in our investment analysis, you should know about.

If you're unsure about the strength of HBM Holdings' 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.