Green Cross Holdings Corporation's (KRX:005250) Price Is Right But Growth Is Lacking

You may think that with a price-to-sales (or "P/S") ratio of 0.3x Green Cross Holdings Corporation (KRX:005250) is definitely a stock worth checking out, seeing as almost half of all the Biotechs companies in Korea have P/S ratios greater than 11x and even P/S above 42x aren't out of the ordinary. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly reduced P/S.

See our latest analysis for Green Cross Holdings

How Has Green Cross Holdings Performed Recently?

Revenue has risen firmly for Green Cross Holdings recently, which is pleasing to see. It might be that many expect the respectable revenue performance to degrade substantially, which has repressed the P/S. If that doesn't eventuate, then existing shareholders have reason to be 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 Green Cross Holdings will help you shine a light on its historical performance.

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

Green Cross Holdings' 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.

Taking a look back first, we see that the company managed to grow revenues by a handy 7.8% last year. The latest three year period has also seen a 19% overall rise in revenue, aided somewhat by its short-term performance. Accordingly, shareholders would have probably been satisfied with the medium-term rates of revenue growth.

This is in contrast to the rest of the industry, which is expected to grow by 47% over the next year, materially higher than the company's recent medium-term annualised growth rates.

With this in consideration, it's easy to understand why Green Cross Holdings' 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.

What Does Green Cross Holdings' P/S Mean For Investors?

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.

Our examination of Green Cross Holdings confirms that the company's revenue trends over the past three-year years are a key factor in its low price-to-sales ratio, as we suspected, given they fall short of current industry expectations. Right now shareholders are accepting the low P/S as they concede future revenue probably won't provide any pleasant surprises. Unless the recent medium-term conditions improve, they will continue to form a barrier for the share price around these levels.

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

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.