KoBioLabs, Inc's (KOSDAQ:348150) Shares Leap 26% Yet They're Still Not Telling The Full Story

KoBioLabs, Inc (KOSDAQ:348150) shareholders would be excited to see that the share price has had a great month, posting a 26% gain and recovering from prior weakness. Taking a wider view, although not as strong as the last month, the full year gain of 14% is also fairly reasonable.

Although its price has surged higher, KoBioLabs may still look like a strong buying opportunity at present with its price-to-sales (or "P/S") ratio of 1.7x, considering almost half of all companies in the Biotechs industry in Korea have P/S ratios greater than 13.9x and even P/S higher than 102x 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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View our latest analysis for KoBioLabs

How KoBioLabs Has Been Performing

KoBioLabs has been doing a good job lately as it's been growing revenue at a solid pace. One possibility is that the P/S is low because investors think this respectable revenue growth might actually underperform 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.

We don't have analyst forecasts, but you can see how recent trends are setting up the company for the future by checking out our free report on KoBioLabs' earnings, revenue and cash flow.

Do Revenue Forecasts Match The Low P/S Ratio?

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

Retrospectively, the last year delivered an exceptional 17% gain to the company's top line. The latest three year period has also seen an incredible overall rise in revenue, aided by its incredible short-term performance. Accordingly, shareholders would have been over the moon with those medium-term rates of revenue growth.

Comparing that recent medium-term revenue trajectory with the industry's one-year growth forecast of 52% shows it's noticeably more attractive.

In light of this, it's peculiar that KoBioLabs' P/S sits below the majority of other companies. Apparently some shareholders believe the recent performance has exceeded its limits and have been accepting significantly lower selling prices.

The Final Word

KoBioLabs' recent share price jump still sees fails to bring its P/S alongside the industry median. 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.

We're very surprised to see KoBioLabs currently trading on a much lower than expected P/S since its recent three-year growth is higher than the wider industry forecast. Potential investors that are sceptical over continued revenue performance may be preventing the P/S ratio from matching previous strong performance. It appears many are indeed anticipating revenue instability, because the persistence of these recent medium-term conditions would normally provide a boost to the share price.

Plus, you should also learn about this 1 warning sign we've spotted with KoBioLabs.

If you're unsure about the strength of KoBioLabs' 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.