Some Confidence Is Lacking In Me2on Co., Ltd. (KOSDAQ:201490) As Shares Slide 26%
Unfortunately for some shareholders, the Me2on Co., Ltd. (KOSDAQ:201490) share price has dived 26% in the last thirty days, prolonging recent pain. The good news is that in the last year, the stock has shone bright like a diamond, gaining 106%.
In spite of the heavy fall in price, you could still be forgiven for feeling indifferent about Me2on's P/S ratio of 1.3x, since the median price-to-sales (or "P/S") ratio for the Hospitality industry in Korea is also close to 1.4x. While this might not raise any eyebrows, if the P/S ratio is not justified investors could be missing out on a potential opportunity or ignoring looming disappointment.
See our latest analysis for Me2on
How Has Me2on Performed Recently?
For example, consider that Me2on's financial performance has been poor lately as its revenue has been in decline. Perhaps investors believe the recent revenue performance is enough to keep in line with the industry, which is keeping the P/S from dropping off. If not, then existing shareholders may be a little nervous about the viability of the share price.
Want the full picture on earnings, revenue and cash flow for the company? Then our free report on Me2on will help you shine a light on its historical performance.Is There Some Revenue Growth Forecasted For Me2on?
The only time you'd be comfortable seeing a P/S like Me2on's is when the company's growth is tracking the industry closely.
In reviewing the last year of financials, we were disheartened to see the company's revenues fell to the tune of 9.6%. This means it has also seen a slide in revenue over the longer-term as revenue is down 19% in total over the last three years. So unfortunately, we have to acknowledge that the company has not done a great job of growing revenue over that time.
In contrast to the company, the rest of the industry is expected to grow by 12% over the next year, which really puts the company's recent medium-term revenue decline into perspective.
In light of this, it's somewhat alarming that Me2on's P/S sits in line with the majority of other companies. It seems most investors are ignoring the recent poor growth rate and are hoping for a turnaround in the company's business prospects. There's a good chance existing shareholders are setting themselves up for future disappointment if the P/S falls to levels more in line with the recent negative growth rates.
The Bottom Line On Me2on's P/S
Following Me2on's share price tumble, its P/S is just clinging on to the industry median P/S. 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.
The fact that Me2on currently trades at a P/S on par with the rest of the industry is surprising to us since its recent revenues have been in decline over the medium-term, all while the industry is set to grow. Even though it matches the industry, we're uncomfortable with the current P/S ratio, as this dismal revenue performance is unlikely to support a more positive sentiment for long. Unless the recent medium-term conditions improve markedly, investors will have a hard time accepting the share price as fair value.
Before you settle on your opinion, we've discovered 2 warning signs for Me2on (1 is a bit concerning!) 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.