Despite an already strong run, Alphamab Oncology (HKG:9966) shares have been powering on, with a gain of 26% in the last thirty days. Not all shareholders will be feeling jubilant, since the share price is still down a very disappointing 24% in the last twelve months.

Since its price has surged higher, Alphamab Oncology's price-to-sales (or "P/S") ratio of 16.7x might make it look like a sell right now compared to the wider Biotechs industry in Hong Kong, where around half of the companies have P/S ratios below 12.5x and even P/S below 2x are quite common. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the elevated P/S.

How Has Alphamab Oncology Performed Recently?

Alphamab Oncology could be doing better as it's been growing revenue less than most other companies lately. One possibility is that the P/S ratio is high because investors think this lacklustre revenue performance will improve markedly. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

How Is Alphamab Oncology's Revenue Growth Trending?

In order to justify its P/S ratio, Alphamab Oncology would need to produce impressive growth in excess of the industry.

Retrospectively, the last year delivered virtually the same number to the company's top line as the year before. The longer-term trend has been no better as the company has no revenue growth to show for over the last three years either. Accordingly, shareholders probably wouldn't have been satisfied with the complete absence of medium-term growth.

Shifting to the future, estimates from the three analysts covering the company suggest revenue should grow by 67% per year over the next three years. That's shaping up to be materially higher than the 53% per annum growth forecast for the broader industry.

With this information, we can see why Alphamab Oncology is trading at such a high P/S compared to the industry. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.

What We Can Learn From Alphamab Oncology's P/S?

The large bounce in Alphamab Oncology's shares has lifted the company's P/S handsomely. 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.

Our look into Alphamab Oncology shows that its P/S ratio remains high on the merit of its strong future revenues. At this stage investors feel the potential for a deterioration in revenues is quite remote, justifying the elevated P/S ratio. It's hard to see the share price falling strongly in the near future under these circumstances.

You should always think about risks. Case in point, we've spotted 1 warning sign for Alphamab Oncology you should be aware of.

If strong companies turning a profit tickle your fancy, then you'll want to check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).

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