Subdued Growth No Barrier To Nuintek Co.,Ltd. (KOSDAQ:012340) With Shares Advancing 26%
The Nuintek Co.,Ltd. (KOSDAQ:012340) share price has done very well over the last month, posting an excellent gain of 26%. Looking further back, the 21% rise over the last twelve months isn't too bad notwithstanding the strength over the last 30 days.
Even after such a large jump in price, there still wouldn't be many who think NuintekLtd's price-to-sales (or "P/S") ratio of 0.4x is worth a mention when the median P/S in Korea's Electronic industry is similar at about 0.8x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/S.
See our latest analysis for NuintekLtd
How NuintekLtd Has Been Performing
Revenue has risen at a steady rate over the last year for NuintekLtd, which is generally not a bad outcome. One possibility is that the P/S is moderate because investors think this good revenue growth might only be parallel to the broader industry in the near future. If you like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's not quite in favour.
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 NuintekLtd's earnings, revenue and cash flow.How Is NuintekLtd's Revenue Growth Trending?
There's an inherent assumption that a company should be matching the industry for P/S ratios like NuintekLtd's to be considered reasonable.
Taking a look back first, we see that the company managed to grow revenues by a handy 6.5% last year. The latest three year period has also seen a 11% overall rise in revenue, aided somewhat by its short-term performance. So we can start by confirming that the company has actually done a good job of growing revenue over that time.
Comparing that to the industry, which is predicted to deliver 26% growth in the next 12 months, the company's momentum is weaker, based on recent medium-term annualised revenue results.
With this information, we find it interesting that NuintekLtd is trading at a fairly similar P/S compared to the industry. It seems most investors are ignoring the fairly limited recent growth rates and are willing to pay up for exposure to the stock. They may be setting themselves up for future disappointment if the P/S falls to levels more in line with recent growth rates.
The Bottom Line On NuintekLtd's P/S
NuintekLtd appears to be back in favour with a solid price jump bringing its P/S back in line with other companies in the industry We'd say the price-to-sales ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.
We've established that NuintekLtd's average P/S is a bit surprising since its recent three-year growth is lower than the wider industry forecast. Right now we are uncomfortable with the P/S as this revenue performance isn't likely to support a more positive sentiment for long. If recent medium-term revenue trends continue, the probability of a share price decline will become quite substantial, placing shareholders at risk.
You should always think about risks. Case in point, we've spotted 3 warning signs for NuintekLtd you should be aware of, and 2 of them are significant.
If you're unsure about the strength of NuintekLtd's 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.