Revenues Not Telling The Story For meerecompany Incorporated (KOSDAQ:049950) After Shares Rise 26%
meerecompany Incorporated (KOSDAQ:049950) shares have had a really impressive month, gaining 26% after a shaky period beforehand. But the gains over the last month weren't enough to make shareholders whole, as the share price is still down 9.1% in the last twelve months.
After such a large jump in price, when almost half of the companies in Korea's Semiconductor industry have price-to-sales ratios (or "P/S") below 1.6x, you may consider meerecompany as a stock probably not worth researching with its 3x 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 as high as it is.
View our latest analysis for meerecompany
What Does meerecompany's Recent Performance Look Like?
For example, consider that meerecompany's financial performance has been poor lately as its revenue has been in decline. One possibility is that the P/S is high because investors think the company will still do enough to outperform the broader industry in the near future. However, if this isn't the case, investors might get caught out paying too much for the stock.
Want the full picture on earnings, revenue and cash flow for the company? Then our free report on meerecompany will help you shine a light on its historical performance.What Are Revenue Growth Metrics Telling Us About The High P/S?
meerecompany's P/S ratio would be typical for a company that's expected to deliver solid growth, and importantly, perform better than the industry.
In reviewing the last year of financials, we were disheartened to see the company's revenues fell to the tune of 23%. The last three years don't look nice either as the company has shrunk revenue by 65% in aggregate. So unfortunately, we have to acknowledge that the company has not done a great job of growing revenue over that time.
Comparing that to the industry, which is predicted to deliver 49% growth in the next 12 months, the company's downward momentum based on recent medium-term revenue results is a sobering picture.
In light of this, it's alarming that meerecompany's P/S sits above 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. Only the boldest would assume these prices are sustainable as a continuation of recent revenue trends is likely to weigh heavily on the share price eventually.
The Bottom Line On meerecompany's P/S
meerecompany shares have taken a big step in a northerly direction, but its P/S is elevated as a result. 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.
We've established that meerecompany currently trades on a much higher than expected P/S since its recent revenues have been in decline over the medium-term. With a revenue decline on investors' minds, the likelihood of a souring sentiment is quite high which could send the P/S back in line with what we'd expect. Should recent medium-term revenue trends persist, it would pose a significant risk to existing shareholders' investments and prospective investors will have a hard time accepting the current value of the stock.
Plus, you should also learn about these 3 warning signs we've spotted with meerecompany (including 1 which shouldn't be ignored).
If these risks are making you reconsider your opinion on meerecompany, 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.