ISU Abxis Co., Ltd. (KOSDAQ:086890) Shares Fly 31% But Investors Aren't Buying For Growth
ISU Abxis Co., Ltd. (KOSDAQ:086890) shares have had a really impressive month, gaining 31% after a shaky period beforehand. The last 30 days bring the annual gain to a very sharp 45%.
Even after such a large jump in price, ISU Abxis may still look like a strong buying opportunity at present with its price-to-sales (or "P/S") ratio of 3.7x, considering almost half of all companies in the Biotechs industry in Korea have P/S ratios greater than 13.4x and even P/S higher than 103x aren't out of the ordinary. However, the P/S might be quite low for a reason and it requires further investigation to determine if it's justified.
Check out our latest analysis for ISU Abxis
How Has ISU Abxis Performed Recently?
The revenue growth achieved at ISU Abxis 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 ISU Abxis 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 ISU Abxis' earnings, revenue and cash flow.How Is ISU Abxis' Revenue Growth Trending?
In order to justify its P/S ratio, ISU Abxis would need to produce anemic growth that's substantially trailing the industry.
If we review the last year of revenue growth, the company posted a terrific increase of 18%. Pleasingly, revenue has also lifted 67% 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 deliver 54% growth in the next 12 months, the company's momentum is weaker, based on recent medium-term annualised revenue results.
With this information, we can see why ISU Abxis is trading at a P/S lower than the industry. Apparently many shareholders weren't comfortable holding on to something they believe will continue to trail the wider industry.
The Bottom Line On ISU Abxis' P/S
Shares in ISU Abxis have risen appreciably however, its P/S is still subdued. 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.
As we suspected, our examination of ISU Abxis revealed its three-year revenue trends are contributing to its low P/S, given they look worse than current industry expectations. At this stage investors feel the potential for an improvement in revenue isn't great enough to justify a higher P/S ratio. Unless the recent medium-term conditions improve, they will continue to form a barrier for the share price around these levels.
Before you take the next step, you should know about the 1 warning sign for ISU Abxis that we have uncovered.
If you're unsure about the strength of ISU Abxis' 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.