Improved Revenues Required Before Biotoxtech Co., Ltd. (KOSDAQ:086040) Shares Find Their Feet

You may think that with a price-to-sales (or "P/S") ratio of 1.1x Biotoxtech Co., Ltd. (KOSDAQ:086040) is definitely a stock worth checking out, seeing as almost half of all the Life Sciences companies in Korea have P/S ratios greater than 3.5x and even P/S above 15x aren't out of the ordinary. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's so limited.

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View our latest analysis for Biotoxtech

What Does Biotoxtech's P/S Mean For Shareholders?

The revenue growth achieved at Biotoxtech over the last year would be more than acceptable for most companies. Perhaps the market is expecting this acceptable revenue performance to take a dive, which has kept the P/S suppressed. If you like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's out of favour.

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

How Is Biotoxtech's Revenue Growth Trending?

The only time you'd be truly comfortable seeing a P/S as depressed as Biotoxtech's is when the company's growth is on track to lag the industry decidedly.

Retrospectively, the last year delivered an exceptional 26% gain to the company's top line. Revenue has also lifted 22% in aggregate from three years ago, mostly thanks to the last 12 months of growth. Accordingly, shareholders would have probably been satisfied with the medium-term rates of revenue growth.

Comparing the recent medium-term revenue trends against the industry's one-year growth forecast of 17% shows it's noticeably less attractive.

With this information, we can see why Biotoxtech is trading at a P/S lower than the industry. It seems most investors are expecting to see the recent limited growth rates continue into the future and are only willing to pay a reduced amount for the stock.

The Key Takeaway

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.

In line with expectations, Biotoxtech maintains its low P/S on the weakness of its recent three-year growth being lower than the wider industry forecast. At this stage investors feel the potential for an improvement in revenue isn't great enough to justify a higher P/S ratio. If recent medium-term revenue trends continue, it's hard to see the share price experience a reversal of fortunes anytime soon.

There are also other vital risk factors to consider and we've discovered 2 warning signs for Biotoxtech (1 is potentially serious!) that you should be aware of before investing here.

If you're unsure about the strength of Biotoxtech's 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.