Revenues Not Telling The Story For Abpro Bio Co., Ltd. (KOSDAQ:195990)

Abpro Bio Co., Ltd.'s (KOSDAQ:195990) price-to-sales (or "P/S") ratio of 6.4x may look like a poor investment opportunity when you consider close to half the companies in the Machinery industry in Korea have P/S ratios below 0.9x. However, the P/S might be quite high for a reason and it requires further investigation to determine if it's justified.

See our latest analysis for Abpro Bio

What Does Abpro Bio's P/S Mean For Shareholders?

The revenue growth achieved at Abpro Bio over the last year would be more than acceptable for most companies. It might be that many expect the respectable revenue performance to beat most other companies over the coming period, which has increased investors’ willingness to pay up for the stock. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

Want the full picture on earnings, revenue and cash flow for the company? Then our free report on Abpro Bio will help you shine a light on its historical performance.

Is There Enough Revenue Growth Forecasted For Abpro Bio?

There's an inherent assumption that a company should far outperform the industry for P/S ratios like Abpro Bio's to be considered reasonable.

Taking a look back first, we see that the company grew revenue by an impressive 25% last year. As a result, it also grew revenue by 5.9% in total over the last three years. So we can start by confirming that the company has actually done a good job of growing revenue over that time.

Comparing that to the industry, which is predicted to deliver 31% growth in the next 12 months, the company's momentum is weaker, based on recent medium-term annualised revenue results.

With this information, we find it concerning that Abpro Bio is trading at a P/S higher than the industry. It seems most investors are ignoring the fairly limited recent growth rates and are hoping for a turnaround in the company's business prospects. There's a good chance existing shareholders are setting themselves up for future disappointment if the P/S falls to levels more in line with recent growth rates.

The Final Word

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 Abpro Bio currently trades on a higher P/S relative to the industry is an oddity, since its recent three-year growth is lower than the wider industry forecast. Right now we aren't comfortable with the high P/S as this revenue performance isn't likely to support such positive sentiment for long. If recent medium-term revenue trends continue, it will place shareholders' investments at significant risk and potential investors in danger of paying an excessive premium.

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

If companies with solid past earnings growth is up your alley, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

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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.