There's No Escaping Naturalendo Tech Co., Ltd.'s (KOSDAQ:168330) Muted Revenues Despite A 36% Share Price Rise

Naturalendo Tech Co., Ltd. (KOSDAQ:168330) shares have had a really impressive month, gaining 36% after a shaky period beforehand. The annual gain comes to 109% following the latest surge, making investors sit up and take notice.

Even after such a large jump in price, Naturalendo Tech may still look like a strong buying opportunity at present with its price-to-sales (or "P/S") ratio of 4.5x, considering almost half of all companies in the Biotechs industry in Korea have P/S ratios greater than 13.7x and even P/S higher than 104x 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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Check out our latest analysis for Naturalendo Tech

What Does Naturalendo Tech's Recent Performance Look Like?

For instance, Naturalendo Tech's receding revenue in recent times would have to be some food for thought. Perhaps the market believes the recent revenue performance isn't good enough to keep up the industry, causing the P/S ratio to suffer. 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.

Want the full picture on earnings, revenue and cash flow for the company? Then our free report on Naturalendo Tech will help you shine a light on its historical performance.

What Are Revenue Growth Metrics Telling Us About The Low P/S?

Naturalendo Tech's P/S ratio would be typical for a company that's expected to deliver very poor growth or even falling revenue, and importantly, perform much worse than the industry.

In reviewing the last year of financials, we were disheartened to see the company's revenues fell to the tune of 9.0%. Even so, admirably revenue has lifted 103% in aggregate from three years ago, notwithstanding the last 12 months. Although it's been a bumpy ride, it's still fair to say the revenue growth recently has been more than adequate for the company.

Comparing that to the industry, which is predicted to deliver 56% growth in the next 12 months, the company's momentum is weaker, based on recent medium-term annualised revenue results.

With this in consideration, it's easy to understand why Naturalendo Tech'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

Naturalendo Tech's recent share price jump still sees fails to bring its P/S alongside the industry median. Generally, our preference is to limit the use of the price-to-sales ratio to establishing what the market thinks about the overall health of a company.

As we suspected, our examination of Naturalendo Tech 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.

Before you settle on your opinion, we've discovered 4 warning signs for Naturalendo Tech (2 are potentially serious!) that you should be aware of.

Of course, profitable companies with a history of great earnings growth are generally safer bets. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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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.