Revenues Tell The Story For Neuromeka Co., Ltd. (KOSDAQ:348340)
When you see that almost half of the companies in the Machinery industry in Korea have price-to-sales ratios (or "P/S") below 1.2x, Neuromeka Co., Ltd. (KOSDAQ:348340) looks to be giving off strong sell signals with its 17.9x P/S ratio. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's so lofty.
Check out our latest analysis for Neuromeka
What Does Neuromeka's P/S Mean For Shareholders?
For example, consider that Neuromeka's financial performance has been poor lately as its revenue has been in decline. Perhaps the market believes the company can do enough to outperform the rest of the industry in the near future, which is keeping the P/S ratio high. However, if this isn't the case, investors might get caught out paying too much for the stock.
Although there are no analyst estimates available for Neuromeka, take a look at this free data-rich visualisation to see how the company stacks up on earnings, revenue and cash flow.How Is Neuromeka's Revenue Growth Trending?
Neuromeka's P/S ratio would be typical for a company that's expected to deliver very strong growth, and importantly, perform much better than the industry.
Retrospectively, the last year delivered a frustrating 20% decrease to the company's top line. Still, the latest three year period has seen an excellent 145% overall rise in revenue, in spite of its unsatisfying short-term performance. So we can start by confirming that the company has generally done a very good job of growing revenue over that time, even though it had some hiccups along the way.
This is in contrast to the rest of the industry, which is expected to grow by 25% over the next year, materially lower than the company's recent medium-term annualised growth rates.
With this information, we can see why Neuromeka is trading at such a high P/S compared to the industry. It seems most investors are expecting this strong growth to continue and are willing to pay more for the stock.
The Bottom Line On Neuromeka's P/S
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 Neuromeka revealed its three-year revenue trends are contributing to its high P/S, given they look better than current industry expectations. Right now shareholders are comfortable with the P/S as they are quite confident revenue aren't under threat. Barring any significant changes to the company's ability to make money, the share price should continue to be propped up.
Plus, you should also learn about these 3 warning signs we've spotted with Neuromeka (including 2 which are potentially serious).
If these risks are making you reconsider your opinion on Neuromeka, explore our interactive list of high quality stocks to get an idea of what else is out there.
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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.