NatureCell Co.,Ltd. (KOSDAQ:007390) Stock Rockets 88% As Investors Are Less Pessimistic Than Expected

NatureCell Co.,Ltd. (KOSDAQ:007390) shareholders have had their patience rewarded with a 88% share price jump in the last month. The annual gain comes to 158% following the latest surge, making investors sit up and take notice.

Since its price has surged higher, NatureCellLtd may be sending very bearish signals at the moment with a price-to-sales (or "P/S") ratio of 47.8x, since almost half of all companies in the Biotechs industry in Korea have P/S ratios under 9.2x and even P/S lower than 2x are not unusual. 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 NatureCellLtd

How Has NatureCellLtd Performed Recently?

NatureCellLtd certainly has been doing a great job lately as it's been growing its revenue at a really rapid pace. It seems that many are expecting the strong revenue performance to beat most other companies over the coming period, which has increased investors’ willingness to pay up for the stock. However, if this isn't the case, investors might get caught out paying too much for the stock.

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

Is There Enough Revenue Growth Forecasted For NatureCellLtd?

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

Retrospectively, the last year delivered an exceptional 30% gain to the company's top line. The strong recent performance means it was also able to grow revenue by 41% in total over the last three years. Therefore, it's fair to say the revenue growth recently has been superb for the company.

Comparing the recent medium-term revenue trends against the industry's one-year growth forecast of 41% shows it's noticeably less attractive.

In light of this, it's alarming that NatureCellLtd's P/S sits above the majority of other companies. Apparently many investors in the company are way more bullish than recent times would indicate and aren't willing to let go of their stock at any price. 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 Bottom Line On NatureCellLtd's P/S

Shares in NatureCellLtd have seen a strong upwards swing lately, which has really helped boost its P/S figure. Using the price-to-sales ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

Our examination of NatureCellLtd revealed its poor three-year revenue trends aren't detracting from the P/S as much as we though, given they look worse than current industry expectations. 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.

Don't forget that there may be other risks. For instance, we've identified 1 warning sign for NatureCellLtd 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.