What HLB Life Science Co., Ltd.'s (KOSDAQ:067630) P/S Is Not Telling You

Simply Wall St · 08/30 23:05

When close to half the companies in the Healthcare industry in Korea have price-to-sales ratios (or "P/S") below 1.6x, you may consider HLB Life Science Co., Ltd. (KOSDAQ:067630) as a stock to avoid entirely with its 15.1x P/S ratio. 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 HLB Life Science

ps-multiple-vs-industry
KOSDAQ:A067630 Price to Sales Ratio vs Industry August 30th 2024

How HLB Life Science Has Been Performing

For instance, HLB Life Science's receding revenue in recent times would have to be some food for thought. One possibility is that the P/S is high because investors think the company will still do enough to outperform the broader industry in the near future. If not, then existing shareholders may be quite nervous about the viability of the share price.

We don't have analyst forecasts, but you can see how recent trends are setting up the company for the future by checking out our free report on HLB Life Science's earnings, revenue and cash flow.

Is There Enough Revenue Growth Forecasted For HLB Life Science?

HLB Life Science's P/S ratio would be typical for a company that's expected to deliver very strong growth, and importantly, perform much better than the industry.

Retrospectively, the last year delivered a frustrating 23% decrease to the company's top line. Even so, admirably revenue has lifted 48% in aggregate from three years ago, notwithstanding the last 12 months. So we can start by confirming that the company has generally done a very good job of growing revenue over that time, even though it had some hiccups along the way.

Comparing that to the industry, which is predicted to deliver 17% growth in the next 12 months, the company's momentum is weaker, based on recent medium-term annualised revenue results.

With this in mind, we find it worrying that HLB Life Science's P/S exceeds that of its industry peers. Apparently many investors in the company are way more bullish than recent times would indicate and aren't willing to let go of their stock at any price. Only the boldest would assume these prices are sustainable as a continuation of recent revenue trends is likely to weigh heavily on the share price eventually.

What Does HLB Life Science's P/S Mean For Investors?

Using the price-to-sales ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

Our examination of HLB Life Science revealed its poor three-year revenue trends aren't detracting from the P/S as much as we though, given they look worse than current industry expectations. When we see slower than industry revenue growth but an elevated P/S, there's considerable risk of the share price declining, sending the P/S lower. Unless there is a significant improvement in the company's medium-term performance, it will be difficult to prevent the P/S ratio from declining to a more reasonable level.

You always need to take note of risks, for example - HLB Life Science has 2 warning signs we think you should be aware of.

If these risks are making you reconsider your opinion on HLB Life Science, explore our interactive list of high quality stocks to get an idea of what else is out there.