Optimistic Investors Push Access Bio, Inc. (KOSDAQ:950130) Shares Up 38% But Growth Is Lacking

The Access Bio, Inc. (KOSDAQ:950130) share price has done very well over the last month, posting an excellent gain of 38%. Notwithstanding the latest gain, the annual share price return of 3.7% isn't as impressive.

Even after such a large jump in price, there still wouldn't be many who think Access Bio's price-to-sales (or "P/S") ratio of 2.2x is worth a mention when the median P/S in Korea's Medical Equipment industry is similar at about 2.4x. Although, it's not wise to simply ignore the P/S without explanation as investors may be disregarding a distinct opportunity or a costly mistake.

Check out our latest analysis for Access Bio

How Access Bio Has Been Performing

As an illustration, revenue has deteriorated at Access Bio over the last year, which is not ideal at all. One possibility is that the P/S is moderate because investors think the company might still do enough to be in line with the broader industry in the near future. If not, then existing shareholders may be a little nervous about the viability of the share price.

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

How Is Access Bio's Revenue Growth Trending?

In order to justify its P/S ratio, Access Bio would need to produce growth that's similar to the industry.

Retrospectively, the last year delivered a frustrating 68% decrease to the company's top line. This means it has also seen a slide in revenue over the longer-term as revenue is down 57% in total over the last three years. So unfortunately, we have to acknowledge that the company has not done a great job of growing revenue over that time.

Weighing that medium-term revenue trajectory against the broader industry's one-year forecast for expansion of 29% shows it's an unpleasant look.

In light of this, it's somewhat alarming that Access Bio's P/S sits in line with the majority of other companies. Apparently many investors in the company are way less bearish than recent times would indicate and aren't willing to let go of their stock right now. 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 the recent negative growth rates.

What Does Access Bio's P/S Mean For Investors?

Access Bio appears to be back in favour with a solid price jump bringing its P/S back in line with other companies in the industry 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 Access Bio currently trades at a P/S on par with the rest of the industry is surprising to us since its recent revenues have been in decline over the medium-term, all while the industry is set to grow. Even though it matches the industry, we're uncomfortable with the current P/S ratio, as this dismal revenue performance is unlikely to support a more positive sentiment for long. If recent medium-term revenue trends continue, it will place shareholders' investments at risk and potential investors in danger of paying an unnecessary premium.

Don't forget that there may be other risks. For instance, we've identified 2 warning signs for Access Bio that you should be aware of.

Of course, profitable companies with a history of great earnings growth are generally safer bets. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com