Kuros Biosciences AG's (VTX:KURN) Shares Climb 30% But Its Business Is Yet to Catch Up

Despite an already strong run, Kuros Biosciences AG (VTX:KURN) shares have been powering on, with a gain of 30% in the last thirty days. The last 30 days were the cherry on top of the stock's 912% gain in the last year, which is nothing short of spectacular.

Since its price has surged higher, Kuros Biosciences' price-to-sales (or "P/S") ratio of 18.3x might make it look like a strong sell right now compared to other companies in the Biotechs industry in Switzerland, where around half of the companies have P/S ratios below 8.2x and even P/S below 4x are quite common. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly elevated P/S.

See our latest analysis for Kuros Biosciences

How Has Kuros Biosciences Performed Recently?

Recent times have been quite advantageous for Kuros Biosciences as its revenue has been rising very briskly. Perhaps the market is expecting future revenue performance to outperform the wider market, which has seemingly got people interested in the stock. If not, then existing shareholders might be a little nervous about the viability of the share price.

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

Do Revenue Forecasts Match The High P/S Ratio?

Kuros Biosciences' P/S ratio would be typical for a company that's expected to deliver very strong growth, and importantly, perform much better than the industry.

Taking a look back first, we see that the company grew revenue by an impressive 157% last year. Spectacularly, three year revenue growth has ballooned by several orders of magnitude, thanks in part to the last 12 months of revenue growth. Accordingly, shareholders would have been over the moon with those medium-term rates of revenue growth.

It's interesting to note that the rest of the industry is similarly expected to grow by 71% over the next year, which is fairly even with the company's recent medium-term annualised growth rates.

In light of this, it's curious that Kuros Biosciences' P/S sits above the majority of other companies. Apparently many investors in the company are more bullish than recent times would indicate and aren't willing to let go of their stock right now. Nevertheless, they may be setting themselves up for future disappointment if the P/S falls to levels more in line with recent growth rates.

The Final Word

The strong share price surge has lead to Kuros Biosciences' P/S soaring as well. While the price-to-sales ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of revenue expectations.

Our look into Kuros Biosciences has shown that it currently trades on a higher than expected P/S since its recent three-year growth is only in line with the wider industry forecast. When we see average revenue with industry-like growth combined with a high P/S, we suspect the share price is at risk of declining, bringing the P/S back in line with the industry too. If recent medium-term revenue trends continue, it will place shareholders' investments at risk and potential investors in danger of paying an unnecessary premium.

We don't want to rain on the parade too much, but we did also find 3 warning signs for Kuros Biosciences (2 shouldn't be ignored!) that you need to be mindful of.

If these risks are making you reconsider your opinion on Kuros Biosciences, 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.