Lifecore Biomedical, Inc. (NASDAQ:LFCR) Soars 36% But It's A Story Of Risk Vs Reward

Despite an already strong run, Lifecore Biomedical, Inc. (NASDAQ:LFCR) shares have been powering on, with a gain of 36% in the last thirty days. Notwithstanding the latest gain, the annual share price return of 2.5% isn't as impressive.

Although its price has surged higher, Lifecore Biomedical may still be sending bullish signals at the moment with its price-to-sales (or "P/S") ratio of 2.1x, since almost half of all companies in the Life Sciences industry in the United States have P/S ratios greater than 3.3x and even P/S higher than 7x are not unusual. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/S.

See our latest analysis for Lifecore Biomedical

How Has Lifecore Biomedical Performed Recently?

With revenue growth that's superior to most other companies of late, Lifecore Biomedical has been doing relatively well. One possibility is that the P/S ratio is low because investors think this strong revenue performance might be less impressive moving forward. If not, then existing shareholders have reason to be quite optimistic about the future direction of the share price.

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Lifecore Biomedical.

How Is Lifecore Biomedical's Revenue Growth Trending?

There's an inherent assumption that a company should underperform the industry for P/S ratios like Lifecore Biomedical's to be considered reasonable.

Taking a look back first, we see that the company grew revenue by an impressive 23% last year. The latest three year period has also seen an excellent 66% overall rise in revenue, aided by its short-term performance. Accordingly, shareholders would have definitely welcomed those medium-term rates of revenue growth.

Shifting to the future, estimates from the three analysts covering the company suggest revenue should grow by 7.5% per year over the next three years. That's shaping up to be similar to the 7.2% per year growth forecast for the broader industry.

With this information, we find it odd that Lifecore Biomedical is trading at a P/S lower than the industry. Apparently some shareholders are doubtful of the forecasts and have been accepting lower selling prices.

What We Can Learn From Lifecore Biomedical's P/S?

Lifecore Biomedical's stock price has surged recently, but its but its P/S still remains modest. Using the price-to-sales ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

We've seen that Lifecore Biomedical currently trades on a lower than expected P/S since its forecast growth is in line with the wider industry. When we see middle-of-the-road revenue growth like this, we assume it must be the potential risks that are what is placing pressure on the P/S ratio. However, if you agree with the analysts' forecasts, you may be able to pick up the stock at an attractive price.

You should always think about risks. Case in point, we've spotted 5 warning signs for Lifecore Biomedical you should be aware of, and 2 of them shouldn't be ignored.

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.