Hofseth BioCare ASA's (OB:HBC) Shares Leap 36% Yet They're Still Not Telling The Full Story

Hofseth BioCare ASA (OB:HBC) shareholders would be excited to see that the share price has had a great month, posting a 36% gain and recovering from prior weakness. Not all shareholders will be feeling jubilant, since the share price is still down a very disappointing 30% in the last twelve months.

Although its price has surged higher, Hofseth BioCare may still look like a strong buying opportunity at present with its price-to-sales (or "P/S") ratio of 3x, considering almost half of all companies in the Biotechs industry in Norway have P/S ratios greater than 9x and even P/S higher than 25x 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.

Check out our latest analysis for Hofseth BioCare

How Hofseth BioCare Has Been Performing

The revenue growth achieved at Hofseth BioCare over the last year would be more than acceptable for most companies. 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. Those who are bullish on Hofseth BioCare will be hoping that this isn't the case, so that they can pick up the stock at a lower valuation.

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 Hofseth BioCare's earnings, revenue and cash flow.

How Is Hofseth BioCare's Revenue Growth Trending?

Hofseth BioCare'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.

Taking a look back first, we see that the company grew revenue by an impressive 21% last year. Pleasingly, revenue has also lifted 193% in aggregate from three years ago, thanks to the last 12 months of growth. So we can start by confirming that the company has done a great job of growing revenue over that time.

Comparing that to the industry, which is predicted to shrink 7.6% in the next 12 months, the company's positive momentum based on recent medium-term revenue results is a bright spot for the moment.

With this information, we find it very odd that Hofseth BioCare is trading at a P/S lower than the industry. Apparently some shareholders believe the recent performance has exceeded its limits and have been accepting significantly lower selling prices.

The Final Word

Hofseth BioCare's recent share price jump still sees fails to bring its P/S alongside the industry median. Typically, we'd caution against reading too much into price-to-sales ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

Looking at the figures, it's surprising to see Hofseth BioCare currently trades on a much lower than expected P/S since its recent three-year revenue growth is beating forecasts for a struggling industry. There could be some major unobserved threats to revenue preventing the P/S ratio from matching this positive performance. The most obvious risk is that its revenue trajectory may not keep outperforming under these tough industry conditions. While the chance of the share price dropping sharply is fairly remote, investors do seem to be anticipating future revenue instability.

Don't forget that there may be other risks. For instance, we've identified 5 warning signs for Hofseth BioCare (3 are potentially serious) you should be aware of.

If strong companies turning a profit tickle your fancy, then you'll want to check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.