Pinning Down Unison Co., Ltd.'s (KOSDAQ:018000) P/S Is Difficult Right Now

Unison Co., Ltd.'s (KOSDAQ:018000) price-to-sales (or "P/S") ratio of 6.2x may look like a poor investment opportunity when you consider close to half the companies in the Electrical industry in Korea have P/S ratios below 1x. However, the P/S might be quite high for a reason and it requires further investigation to determine if it's justified.

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View our latest analysis for Unison

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

For example, consider that Unison'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. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

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 Unison's earnings, revenue and cash flow.

Is There Enough Revenue Growth Forecasted For Unison?

The only time you'd be truly comfortable seeing a P/S as steep as Unison's is when the company's growth is on track to outshine the industry decidedly.

In reviewing the last year of financials, we were disheartened to see the company's revenues fell to the tune of 76%. The last three years don't look nice either as the company has shrunk revenue by 83% in aggregate. 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.

With this information, we find it concerning that Unison is trading at a P/S higher than the industry. 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 Key Takeaway

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.

Our examination of Unison revealed its shrinking revenue over the medium-term isn't resulting in a P/S as low as we expected, given the industry is set to grow. 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. Unless the the circumstances surrounding the recent medium-term improve, it wouldn't be wrong to expect a a difficult period ahead for the company's shareholders.

You should always think about risks. Case in point, we've spotted 3 warning signs for Unison you should be aware of, and 2 of them are potentially serious.

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