Market Still Lacking Some Conviction On LabGenomics Co., Ltd. (KOSDAQ:084650)

LabGenomics Co., Ltd.'s (KOSDAQ:084650) price-to-sales (or "P/S") ratio of 2.8x might make it look like a strong buy right now compared to the Biotechs industry in Korea, where around half of the companies have P/S ratios above 12.4x and even P/S above 50x 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.

Check out our latest analysis for LabGenomics

What Does LabGenomics' Recent Performance Look Like?

While the industry has experienced revenue growth lately, LabGenomics' revenue has gone into reverse gear, which is not great. Perhaps the P/S remains low as investors think the prospects of strong revenue growth aren't on the horizon. So while you could say the stock is cheap, investors will be looking for improvement before they see it as good value.

Keen to find out how analysts think LabGenomics' future stacks up against the industry? In that case, our free report is a great place to start.

Is There Any Revenue Growth Forecasted For LabGenomics?

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

Retrospectively, the last year delivered a frustrating 49% decrease to the company's top line. The last three years don't look nice either as the company has shrunk revenue by 39% in aggregate. Accordingly, shareholders would have felt downbeat about the medium-term rates of revenue growth.

Turning to the outlook, the next year should generate growth of 52% as estimated by the one analyst watching the company. Meanwhile, the rest of the industry is forecast to only expand by 33%, which is noticeably less attractive.

In light of this, it's peculiar that LabGenomics' P/S sits below the majority of other companies. Apparently some shareholders are doubtful of the forecasts and have been accepting significantly lower selling prices.

The Final Word

Generally, our preference is to limit the use of the price-to-sales ratio to establishing what the market thinks about the overall health of a company.

A look at LabGenomics' revenues reveals that, despite glowing future growth forecasts, its P/S is much lower than we'd expect. There could be some major risk factors that are placing downward pressure on the P/S ratio. While the possibility of the share price plunging seems unlikely due to the high growth forecasted for the company, the market does appear to have some hesitation.

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

If you're unsure about the strength of LabGenomics' business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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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.