CORESTEMCHEMON Inc.'s (KOSDAQ:166480) Shares Bounce 25% But Its Business Still Trails The Industry

CORESTEMCHEMON Inc. (KOSDAQ:166480) shares have continued their recent momentum with a 25% gain in the last month alone. Taking a wider view, although not as strong as the last month, the full year gain of 12% is also fairly reasonable.

Even after such a large jump in price, CORESTEMCHEMON may still be sending very bullish signals at the moment with its price-to-sales (or "P/S") ratio of 4.7x, since almost half of all companies in the Biotechs industry in Korea have P/S ratios greater than 10.4x and even P/S higher than 37x are not unusual. However, the P/S might be quite low for a reason and it requires further investigation to determine if it's justified.

View our latest analysis for CORESTEMCHEMON

How Has CORESTEMCHEMON Performed Recently?

It looks like revenue growth has deserted CORESTEMCHEMON recently, which is not something to boast about. It might be that many expect the uninspiring revenue performance to worsen, which has repressed the P/S. 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 CORESTEMCHEMON, take a look at this free data-rich visualisation to see how the company stacks up on earnings, revenue and cash flow.

Do Revenue Forecasts Match The Low P/S Ratio?

In order to justify its P/S ratio, CORESTEMCHEMON would need to produce anemic growth that's substantially trailing the industry.

Taking a look back first, we see that there was hardly any revenue growth to speak of for the company over the past year. Still, the latest three year period has seen an excellent 63% overall rise in revenue, in spite of its uninspiring short-term performance. So while the company has done a solid job in the past, it's somewhat concerning to see revenue growth decline as much as it has.

This is in contrast to the rest of the industry, which is expected to grow by 40% over the next year, materially higher than the company's recent medium-term annualised growth rates.

With this in consideration, it's easy to understand why CORESTEMCHEMON's P/S falls short of the mark set by its industry peers. 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

Even after such a strong price move, CORESTEMCHEMON's P/S still trails the rest of the industry. While the price-to-sales ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of revenue expectations.

As we suspected, our examination of CORESTEMCHEMON revealed its three-year revenue trends are contributing to its low P/S, given they look worse than current industry expectations. 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.

And what about other risks? Every company has them, and we've spotted 2 warning signs for CORESTEMCHEMON you should know about.

If these risks are making you reconsider your opinion on CORESTEMCHEMON, explore our interactive list of high quality stocks to get an idea of what else is out there.

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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.