Lacklustre Performance Is Driving Medy-Tox Inc.'s (KOSDAQ:086900) 27% Price Drop

To the annoyance of some shareholders, Medy-Tox Inc. (KOSDAQ:086900) shares are down a considerable 27% in the last month, which continues a horrid run for the company. Instead of being rewarded, shareholders who have already held through the last twelve months are now sitting on a 39% share price drop.

Although its price has dipped substantially, Medy-Tox's price-to-sales (or "P/S") ratio of 3.4x might still make it look like a strong buy right now compared to the wider Biotechs industry in Korea, where around half of the companies have P/S ratios above 8.8x and even P/S above 45x are quite common. 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.

Check out our latest analysis for Medy-Tox

What Does Medy-Tox's P/S Mean For Shareholders?

There hasn't been much to differentiate Medy-Tox's and the industry's revenue growth lately. Perhaps the market is expecting future revenue performance to 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 pick up some stock while it's out of favour.

Want the full picture on analyst estimates for the company? Then our free report on Medy-Tox will help you uncover what's on the horizon.

How Is Medy-Tox's Revenue Growth Trending?

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

Retrospectively, the last year delivered an exceptional 23% gain to the company's top line. The strong recent performance means it was also able to grow revenue by 75% in total over the last three years. Therefore, it's fair to say the revenue growth recently has been superb for the company.

Shifting to the future, estimates from the six analysts covering the company suggest revenue should grow by 5.8% over the next year. With the industry predicted to deliver 37% growth, the company is positioned for a weaker revenue result.

In light of this, it's understandable that Medy-Tox's P/S sits below the majority of other companies. It seems most investors are expecting to see limited future growth and are only willing to pay a reduced amount for the stock.

What Does Medy-Tox's P/S Mean For Investors?

Having almost fallen off a cliff, Medy-Tox's share price has pulled its P/S way down as well. 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.

We've established that Medy-Tox maintains its low P/S on the weakness of its forecast growth being lower than the wider industry, as expected. At this stage investors feel the potential for an improvement in revenue isn't great enough to justify a higher P/S ratio. It's hard to see the share price rising strongly in the near future under these circumstances.

Before you settle on your opinion, we've discovered 1 warning sign for Medy-Tox that you should be aware of.

If strong companies turning a profit tickle your fancy, then you'll want to check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).

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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.