Risks Still Elevated At These Prices As LigaChem Biosciences Inc. (KOSDAQ:141080) Shares Dive 26%

LigaChem Biosciences Inc. (KOSDAQ:141080) shares have had a horrible month, losing 26% after a relatively good period beforehand. Still, a bad month hasn't completely ruined the past year with the stock gaining 95%, which is great even in a bull market.

Even after such a large drop in price, LigaChem Biosciences may still be sending strong sell signals at present with a price-to-sales (or "P/S") ratio of 34.3x, when you consider almost half of the companies in the Life Sciences industry in Korea have P/S ratios under 3.7x and even P/S lower than 1.5x 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 lofty.

View our latest analysis for LigaChem Biosciences

What Does LigaChem Biosciences' P/S Mean For Shareholders?

Recent times have been advantageous for LigaChem Biosciences as its revenues have been rising faster than most other companies. It seems that many are expecting the strong revenue performance to persist, which has raised the P/S. However, if this isn't the case, investors might get caught out paying too much for the stock.

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

How Is LigaChem Biosciences' Revenue Growth Trending?

LigaChem Biosciences' P/S ratio would be typical for a company that's expected to deliver very strong growth, and importantly, perform much better than the industry.

Retrospectively, the last year delivered an exceptional 194% gain to the company's top line. The strong recent performance means it was also able to grow revenue by 215% in total over the last three years. Accordingly, shareholders would have definitely welcomed those medium-term rates of revenue growth.

Turning to the outlook, the next three years should generate growth of 8.5% per year as estimated by the six analysts watching the company. Meanwhile, the rest of the industry is forecast to expand by 17% each year, which is noticeably more attractive.

With this information, we find it concerning that LigaChem Biosciences is trading at a P/S higher than the industry. Apparently many investors in the company are way more bullish than analysts indicate and aren't willing to let go of their stock at any price. Only the boldest would assume these prices are sustainable as this level of revenue growth is likely to weigh heavily on the share price eventually.

The Key Takeaway

LigaChem Biosciences' shares may have suffered, but its P/S remains high. 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.

Despite analysts forecasting some poorer-than-industry revenue growth figures for LigaChem Biosciences, this doesn't appear to be impacting the P/S in the slightest. Right now we aren't comfortable with the high P/S as the predicted future revenues aren't likely to support such positive sentiment for long. Unless these conditions improve markedly, it's very challenging to accept these prices as being reasonable.

It is also worth noting that we have found 2 warning signs for LigaChem Biosciences that you need to take into consideration.

If you're unsure about the strength of LigaChem Biosciences' 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.