There's Reason For Concern Over Kora Saúde Participações S.A.'s (BVMF:KRSA3) Massive 25% Price Jump

Despite an already strong run, Kora Saúde Participações S.A. (BVMF:KRSA3) shares have been powering on, with a gain of 25% in the last thirty days. Not all shareholders will be feeling jubilant, since the share price is still down a very disappointing 37% in the last twelve months.

In spite of the firm bounce in price, you could still be forgiven for feeling indifferent about Kora Saúde Participações' P/S ratio of 0.3x, since the median price-to-sales (or "P/S") ratio for the Healthcare industry in Brazil is also close to 0.4x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/S.

View our latest analysis for Kora Saúde Participações

How Kora Saúde Participações Has Been Performing

Recent times haven't been great for Kora Saúde Participações as its revenue has been rising slower than most other companies. One possibility is that the P/S ratio is moderate because investors think this lacklustre revenue performance will turn around. You'd really hope so, otherwise you're paying a relatively elevated price for a company with this sort of growth profile.

Keen to find out how analysts think Kora Saúde Participações' future stacks up against the industry? In that case, our free report is a great place to start.

How Is Kora Saúde Participações' Revenue Growth Trending?

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

Taking a look back first, we see that there was hardly any revenue growth to speak of for the company over the past year. However, a few strong years before that means that it was still able to grow revenue by an impressive 121% in total over the last three years. So while the company has done a solid job in the past, it's somewhat concerning to see revenue growth decline as much as it has.

Turning to the outlook, the next three years should generate growth of 6.6% per year as estimated by the two analysts watching the company. That's shaping up to be materially lower than the 11% per year growth forecast for the broader industry.

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 Key Takeaway

Its shares have lifted substantially and now Kora Saúde Participações' P/S is back within range of the industry median. 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.

When you consider that Kora Saúde Participações' revenue growth estimates are fairly muted compared to the broader industry, it's easy to see why we consider it unexpected to be trading at its current P/S ratio. At present, we aren't confident in the P/S as the predicted future revenues aren't likely to support a more positive sentiment for long. 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.

There are also other vital risk factors to consider before investing and we've discovered 1 warning sign for Kora Saúde Participações that you should be aware of.

If you're unsure about the strength of Kora Saúde Participações' 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.