Investors Give Kovo HealthTech Corporation (CVE:KOVO) Shares A 27% Hiding

Kovo HealthTech Corporation (CVE:KOVO) shareholders won't be pleased to see that the share price has had a very rough month, dropping 27% and undoing the prior period's positive performance. The recent drop completes a disastrous twelve months for shareholders, who are sitting on a 74% loss during that time.

Since its price has dipped substantially, Kovo HealthTech's price-to-sales (or "P/S") ratio of 0.2x might make it look like a strong buy right now compared to the wider Healthcare Services industry in Canada, where around half of the companies have P/S ratios above 6.1x and even P/S above 30x are quite common. However, the P/S might be quite low for a reason and it requires further investigation to determine if it's justified.

Check out our latest analysis for Kovo HealthTech

What Does Kovo HealthTech's P/S Mean For Shareholders?

As an illustration, revenue has deteriorated at Kovo HealthTech over the last year, which is not ideal at all. It might be that many expect the disappointing revenue performance to continue or accelerate, which has repressed the P/S. However, if this doesn't eventuate then existing shareholders may be feeling optimistic about the future direction 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 Kovo HealthTech's earnings, revenue and cash flow.

Is There Any Revenue Growth Forecasted For Kovo HealthTech?

In order to justify its P/S ratio, Kovo HealthTech would need to produce anemic growth that's substantially trailing the industry.

Retrospectively, the last year delivered a frustrating 5.0% decrease to the company's top line. However, a few very strong years before that means that it was still able to grow revenue by an impressive 232% in total over the last three years. 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 recent medium-term revenue trajectory with the industry's one-year growth forecast of 13% shows it's noticeably more attractive.

With this information, we find it odd that Kovo HealthTech is trading at a P/S lower than the industry. It looks like most investors are not convinced the company can maintain its recent growth rates.

What We Can Learn From Kovo HealthTech's P/S?

Shares in Kovo HealthTech have plummeted and its P/S has followed suit. 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.

Our examination of Kovo HealthTech revealed its three-year revenue trends aren't boosting its P/S anywhere near as much as we would have predicted, given they look better than current industry expectations. When we see robust revenue growth that outpaces the industry, we presume that there are notable underlying risks to the company's future performance, which is exerting downward pressure on the P/S ratio. While recent revenue trends over the past medium-term suggest that the risk of a price decline is low, investors appear to perceive a likelihood of revenue fluctuations in the future.

There are also other vital risk factors to consider before investing and we've discovered 5 warning signs for Kovo HealthTech that you should be aware of.

If you're unsure about the strength of Kovo HealthTech'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.