Investors Don't See Light At End Of CyberStep, Inc.'s (TSE:3810) Tunnel And Push Stock Down 44%

The CyberStep, Inc. (TSE:3810) share price has fared very poorly over the last month, falling by a substantial 44%. The recent drop completes a disastrous twelve months for shareholders, who are sitting on a 67% loss during that time.

Following the heavy fall in price, considering around half the companies operating in Japan's Entertainment industry have price-to-sales ratios (or "P/S") above 1.3x, you may consider CyberStep as an solid investment opportunity with its 0.6x 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 limited.

See our latest analysis for CyberStep

What Does CyberStep's P/S Mean For Shareholders?

For example, consider that CyberStep's financial performance has been poor lately as its revenue has been in decline. Perhaps the market believes the recent revenue performance isn't good enough to keep up the industry, causing the P/S ratio to suffer. 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 out of favour.

Although there are no analyst estimates available for CyberStep, take a look at this free data-rich visualisation to see how the company stacks up on earnings, revenue and cash flow.

How Is CyberStep's Revenue Growth Trending?

CyberStep's P/S ratio would be typical for a company that's only expected to deliver limited growth, and importantly, perform worse than the industry.

In reviewing the last year of financials, we were disheartened to see the company's revenues fell to the tune of 26%. This means it has also seen a slide in revenue over the longer-term as revenue is down 76% in total over the last three years. Accordingly, shareholders would have felt downbeat about the medium-term rates of revenue growth.

This is in contrast to the rest of the industry, which is expected to decline by 2.2% over the next year, or less than the company's recent medium-term annualised revenue decline.

In light of this, it's understandable that CyberStep's P/S sits below the majority of other companies. Nonetheless, with revenue going quickly in reverse, it's not guaranteed that the P/S has found a floor yet. Even just maintaining these prices will be difficult to achieve as recent revenue trends are already weighing down the shares heavily.

What We Can Learn From CyberStep's P/S?

CyberStep's P/S has taken a dip along with its share price. It's argued the price-to-sales ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

It's clear that CyberStep trades at a low P/S relative to the wider industry on the weakness of its recent three-year revenue being even worse than the forecasts for a struggling industry, as expected. Right now shareholders are accepting the low P/S as they concede future revenue probably won't provide any pleasant surprises. However, we're still cautious about the company's ability to prevent an acceleration of its recent medium-term course and resist even greater pain to its business from the broader industry turmoil. In the meantime, unless the company's relative performance improves, the share price will hit a barrier around these levels.

You should always think about risks. Case in point, we've spotted 5 warning signs for CyberStep you should be aware of, and 2 of them are concerning.

If these risks are making you reconsider your opinion on CyberStep, 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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com