Kora Saúde Participações S.A.'s (BVMF:KRSA3) Shares Climb 26% But Its Business Is Yet to Catch Up

Those holding Kora Saúde Participações S.A. (BVMF:KRSA3) shares would be relieved that the share price has rebounded 26% in the last thirty days, but it needs to keep going to repair the recent damage it has caused to investor portfolios. Not all shareholders will be feeling jubilant, since the share price is still down a very disappointing 33% in the last twelve months.

Although its price has surged higher, it's still not a stretch to say that Kora Saúde Participações' price-to-sales (or "P/S") ratio of 0.2x right now seems quite "middle-of-the-road" compared to the Healthcare industry in Brazil, where the median P/S ratio is around 0.6x. While this might not raise any eyebrows, if the P/S ratio is not justified investors could be missing out on a potential opportunity or ignoring looming disappointment.

Check out our latest analysis for Kora Saúde Participações

What Does Kora Saúde Participações' P/S Mean For Shareholders?

With revenue growth that's inferior to most other companies of late, Kora Saúde Participações has been relatively sluggish. One possibility is that the P/S ratio is moderate because investors think this lacklustre revenue performance will turn around. However, if this isn't the case, investors might get caught out paying too much for the stock.

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Kora Saúde Participações.

Do Revenue Forecasts Match The P/S Ratio?

In order to justify its P/S ratio, Kora Saúde Participações would need to produce growth that's similar to the industry.

Retrospectively, the last year delivered a decent 5.6% gain to the company's revenues. The latest three year period has also seen an excellent 166% overall rise in revenue, aided somewhat by its short-term performance. So we can start by confirming that the company has done a great job of growing revenues over that time.

Turning to the outlook, the next three years should generate growth of 6.6% each year as estimated by the four analysts watching the company. Meanwhile, the rest of the industry is forecast to expand by 10% each year, which is noticeably more attractive.

In light of this, it's curious that Kora Saúde Participações' P/S sits in line with the majority of other companies. It seems most investors are ignoring the fairly limited growth expectations and are willing to pay up for exposure to the stock. These shareholders may be setting themselves up for future disappointment if the P/S falls to levels more in line with the growth outlook.

The Final Word

Kora Saúde Participações' stock has a lot of momentum behind it lately, which has brought its P/S level with the rest of the industry. We'd say the price-to-sales ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

Given that Kora Saúde Participações' revenue growth projections are relatively subdued in comparison to the wider industry, it comes as a surprise to see it trading at its current P/S ratio. When we see companies with a relatively weaker revenue outlook compared to the industry, we suspect the share price is at risk of declining, sending the moderate P/S lower. Circumstances like this present a risk to current and prospective investors who may see share prices fall if the low revenue growth impacts the sentiment.

Don't forget that there may be other risks. For instance, we've identified 2 warning signs for Kora Saúde Participações that 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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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.