Why Investors Shouldn't Be Surprised By CORESTEMCHEMON Inc.'s (KOSDAQ:166480) 40% Share Price Plunge

The CORESTEMCHEMON Inc. (KOSDAQ:166480) share price has fared very poorly over the last month, falling by a substantial 40%. The recent drop completes a disastrous twelve months for shareholders, who are sitting on a 80% loss during that time.

After such a large drop in price, CORESTEMCHEMON may look like a strong buying opportunity at present with its price-to-sales (or "P/S") ratio of 1.9x, considering almost half of all companies in the Biotechs industry in Korea have P/S ratios greater than 15.3x and even P/S higher than 46x aren't out of the ordinary. However, the P/S might be quite low for a reason and it requires further investigation to determine if it's justified.

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See our latest analysis for CORESTEMCHEMON

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

For instance, CORESTEMCHEMON's receding revenue in recent times would have to be some food for thought. One possibility is that the P/S is low because investors think the company won't do enough to avoid underperforming the broader industry in the near future. 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.

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Do Revenue Forecasts Match The Low P/S Ratio?

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

In reviewing the last year of financials, we were disheartened to see the company's revenues fell to the tune of 11%. The last three years don't look nice either as the company has shrunk revenue by 22% in aggregate. Therefore, it's fair to say the revenue growth recently has been undesirable for the company.

In contrast to the company, the rest of the industry is expected to grow by 44% over the next year, which really puts the company's recent medium-term revenue decline into perspective.

In light of this, it's understandable that CORESTEMCHEMON's P/S would sit below the majority of other companies. Nonetheless, there's no guarantee the P/S has reached a floor yet with revenue going in reverse. Even just maintaining these prices could be difficult to achieve as recent revenue trends are already weighing down the shares.

The Bottom Line On CORESTEMCHEMON's P/S

Shares in CORESTEMCHEMON have plummeted and its P/S has followed suit. 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.

It's no surprise that CORESTEMCHEMON maintains its low P/S off the back of its sliding revenue over the medium-term. Right now shareholders are accepting the low P/S as they concede future revenue probably won't provide any pleasant surprises either. Given the current circumstances, it seems unlikely that the share price will experience any significant movement in either direction in the near future if recent medium-term revenue trends persist.

It is also worth noting that we have found 4 warning signs for CORESTEMCHEMON (2 are a bit concerning!) that you need to take into consideration.

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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.