More Unpleasant Surprises Could Be In Store For Aprogen Biologics Inc.'s (KRX:003060) Shares After Tumbling 28%

Aprogen Biologics Inc. (KRX:003060) shares have had a horrible month, losing 28% after a relatively good period beforehand. The recent drop completes a disastrous twelve months for shareholders, who are sitting on a 59% loss during that time.

Although its price has dipped substantially, you could still be forgiven for feeling indifferent about Aprogen Biologics' P/S ratio of 1.2x, since the median price-to-sales (or "P/S") ratio for the Pharmaceuticals industry in Korea is also close to 0.9x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/S.

View our latest analysis for Aprogen Biologics

What Does Aprogen Biologics' P/S Mean For Shareholders?

Aprogen Biologics certainly has been doing a great job lately as it's been growing its revenue at a really rapid pace. It might be that many expect the strong revenue performance to wane, which has kept the share price, and thus the P/S ratio, from rising. If that doesn't eventuate, then existing shareholders have reason to be feeling optimistic about the future direction of the share price.

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

How Is Aprogen Biologics' Revenue Growth Trending?

There's an inherent assumption that a company should be matching the industry for P/S ratios like Aprogen Biologics' to be considered reasonable.

Retrospectively, the last year delivered an exceptional 34% gain to the company's top line. The strong recent performance means it was also able to grow revenue by 64% in total over the last three years. Therefore, it's fair to say the revenue growth recently has been superb for the company.

This is in contrast to the rest of the industry, which is expected to grow by 46% over the next year, materially higher than the company's recent medium-term annualised growth rates.

In light of this, it's curious that Aprogen Biologics' P/S sits in line with the majority of other companies. It seems most investors are ignoring the fairly limited recent growth rates and are willing to pay up for exposure to the stock. Maintaining these prices will be difficult to achieve as a continuation of recent revenue trends is likely to weigh down the shares eventually.

What Does Aprogen Biologics' P/S Mean For Investors?

With its share price dropping off a cliff, the P/S for Aprogen Biologics looks to be in line with the rest of the Pharmaceuticals industry. 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.

We've established that Aprogen Biologics' average P/S is a bit surprising since its recent three-year growth is lower than the wider industry forecast. Right now we are uncomfortable with the P/S as this revenue performance isn't likely to support a more positive sentiment for long. If recent medium-term revenue trends continue, the probability of a share price decline will become quite substantial, placing shareholders at risk.

Before you take the next step, you should know about the 4 warning signs for Aprogen Biologics (1 makes us a bit uncomfortable!) that we have uncovered.

It's important to make sure you look for a great company, not just the first idea you come across. So if growing profitability aligns with your idea of a great company, take a peek at this free list of interesting companies with strong recent earnings growth (and a low P/E).

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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.