Kovo+ Holdings Inc. (CVE:KOVO) Soars 71% But It's A Story Of Risk Vs Reward

Kovo+ Holdings Inc. (CVE:KOVO) shareholders would be excited to see that the share price has had a great month, posting a 71% gain and recovering from prior weakness. The last month tops off a massive increase of 200% in the last year.

Even after such a large jump in price, Kovo+ Holdings' price-to-sales (or "P/S") ratio of 0.7x might still 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 11.4x and even P/S above 204x 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.

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See our latest analysis for Kovo+ Holdings

How Has Kovo+ Holdings Performed Recently?

For instance, Kovo+ Holdings' receding revenue in recent times would have to be some food for thought. It might be that many expect the disappointing revenue performance to continue or accelerate, which has repressed the P/S. If you like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's out of favour.

Although there are no analyst estimates available for Kovo+ Holdings, take a look at this free data-rich visualisation to see how the company stacks up on earnings, revenue and cash flow.

How Is Kovo+ Holdings' Revenue Growth Trending?

The only time you'd be truly comfortable seeing a P/S as depressed as Kovo+ Holdings' is when the company's growth is on track to lag the industry decidedly.

Taking a look back first, the company's revenue growth last year wasn't something to get excited about as it posted a disappointing decline of 1.2%. Still, the latest three year period has seen an excellent 34% overall rise in revenue, in spite of its unsatisfying short-term performance. Although it's been a bumpy ride, it's still fair to say the revenue growth recently has been more than adequate for the company.

Comparing that to the industry, which is predicted to deliver 11% growth in the next 12 months, the company's momentum is pretty similar based on recent medium-term annualised revenue results.

With this in consideration, we find it intriguing that Kovo+ Holdings' P/S falls short of its industry peers. It may be that most investors are not convinced the company can maintain recent growth rates.

The Bottom Line On Kovo+ Holdings' P/S

Kovo+ Holdings' recent share price jump still sees fails to bring its P/S alongside the industry median. 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.

The fact that Kovo+ Holdings currently trades at a low P/S relative to the industry is unexpected considering its recent three-year growth is in line with the wider industry forecast. When we see industry-like revenue growth but a lower than expected P/S, we assume potential risks are what might be placing downward pressure on the share price. While recent

You should always think about risks. Case in point, we've spotted 5 warning signs for Kovo+ Holdings you should be aware of.

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

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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.