Some Star Combo Pharma Limited (ASX:S66) Shareholders Look For Exit As Shares Take 31% Pounding

Star Combo Pharma Limited (ASX:S66) shares have had a horrible month, losing 31% after a relatively good period beforehand. The drop over the last 30 days has capped off a tough year for shareholders, with the share price down 15% in that time.

In spite of the heavy fall in price, you could still be forgiven for feeling indifferent about Star Combo Pharma's P/S ratio of 0.6x, since the median price-to-sales (or "P/S") ratio for the Personal Products industry in Australia is about the same. Although, it's not wise to simply ignore the P/S without explanation as investors may be disregarding a distinct opportunity or a costly mistake.

View our latest analysis for Star Combo Pharma

How Has Star Combo Pharma Performed Recently?

Revenue has risen at a steady rate over the last year for Star Combo Pharma, which is generally not a bad outcome. One possibility is that the P/S is moderate because investors think this good revenue growth might only be parallel to the broader industry in the near future. Those who are bullish on Star Combo Pharma will be hoping that this isn't the case, so that they can pick up the stock at a lower valuation.

Want the full picture on earnings, revenue and cash flow for the company? Then our free report on Star Combo Pharma will help you shine a light on its historical performance.

Is There Some Revenue Growth Forecasted For Star Combo Pharma?

There's an inherent assumption that a company should be matching the industry for P/S ratios like Star Combo Pharma's to be considered reasonable.

If we review the last year of revenue growth, the company posted a worthy increase of 5.3%. Ultimately though, it couldn't turn around the poor performance of the prior period, with revenue shrinking 3.5% in total over the last three years. Accordingly, shareholders would have felt downbeat about the medium-term rates of revenue growth.

In contrast to the company, the rest of the industry is expected to grow by 5.8% over the next year, which really puts the company's recent medium-term revenue decline into perspective.

With this information, we find it concerning that Star Combo Pharma is trading at a fairly similar P/S compared to the industry. Apparently many investors in the company are way less bearish than recent times would indicate and aren't willing to let go of their stock right now. Only the boldest would assume these prices are sustainable as a continuation of recent revenue trends is likely to weigh on the share price eventually.

What We Can Learn From Star Combo Pharma's P/S?

Following Star Combo Pharma's share price tumble, its P/S is just clinging on to the industry median P/S. 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.

The fact that Star Combo Pharma currently trades at a P/S on par with the rest of the industry is surprising to us since its recent revenues have been in decline over the medium-term, all while the industry is set to grow. Even though it matches the industry, we're uncomfortable with the current P/S ratio, as this dismal revenue performance is unlikely to support a more positive sentiment for long. If recent medium-term revenue trends continue, it will place shareholders' investments at risk and potential investors in danger of paying an unnecessary premium.

You should always think about risks. Case in point, we've spotted 2 warning signs for Star Combo Pharma you should be aware of, and 1 of them makes us a bit uncomfortable.

If you're unsure about the strength of Star Combo Pharma's 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.