The Price Is Right For OliX Pharmaceuticals, Inc (KOSDAQ:226950) Even After Diving 27%

Unfortunately for some shareholders, the OliX Pharmaceuticals, Inc (KOSDAQ:226950) share price has dived 27% in the last thirty days, prolonging recent pain. The recent drop has obliterated the annual return, with the share price now down 5.7% over that longer period.

Although its price has dipped substantially, OliX Pharmaceuticals may still be sending strong sell signals at present with a price-to-sales (or "P/S") ratio of 16.2x, when you consider almost half of the companies in the Biotechs industry in Korea have P/S ratios under 10.3x and even P/S lower than 2x 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 OliX Pharmaceuticals

How Has OliX Pharmaceuticals Performed Recently?

Recent times have been quite advantageous for OliX Pharmaceuticals as its revenue has been rising very briskly. The P/S ratio is probably high because investors think this strong revenue growth will be enough to outperform the broader industry in the near future. However, if this isn't the case, investors might get caught out paying too much for the stock.

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

Do Revenue Forecasts Match The High P/S Ratio?

OliX Pharmaceuticals' 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 123% gain to the company's top line. Pleasingly, revenue has also lifted 299% in aggregate from three years ago, thanks to the last 12 months of growth. Therefore, it's fair to say the revenue growth recently has been superb for the company.

Comparing that to the industry, which is only predicted to deliver 47% growth in the next 12 months, the company's momentum is stronger based on recent medium-term annualised revenue results.

With this in consideration, it's not hard to understand why OliX Pharmaceuticals' P/S is high relative to its industry peers. Presumably shareholders aren't keen to offload something they believe will continue to outmanoeuvre the wider industry.

What Does OliX Pharmaceuticals' P/S Mean For Investors?

Even after such a strong price drop, OliX Pharmaceuticals' P/S still exceeds the industry median significantly. 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.

As we suspected, our examination of OliX Pharmaceuticals revealed its three-year revenue trends are contributing to its high P/S, given they look better than current industry expectations. At this stage investors feel the potential continued revenue growth in the future is great enough to warrant an inflated P/S. Unless the recent medium-term conditions change, they will continue to provide strong support to the share price.

There are also other vital risk factors to consider before investing and we've discovered 3 warning signs for OliX Pharmaceuticals that you should be aware of.

If companies with solid past earnings growth is up your alley, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

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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.