Finetechnix. Co.,Ltd.'s (KOSDAQ:106240) Share Price Boosted 25% But Its Business Prospects Need A Lift Too

Despite an already strong run, Finetechnix. Co.,Ltd. (KOSDAQ:106240) shares have been powering on, with a gain of 25% in the last thirty days. Unfortunately, the gains of the last month did little to right the losses of the last year with the stock still down 12% over that time.

Although its price has surged higher, Finetechnix.Ltd's price-to-sales (or "P/S") ratio of 0.4x might still make it look like a buy right now compared to the Electrical industry in Korea, where around half of the companies have P/S ratios above 1x and even P/S above 3x are quite common. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/S.

See our latest analysis for Finetechnix.Ltd

What Does Finetechnix.Ltd's Recent Performance Look Like?

For example, consider that Finetechnix.Ltd's financial performance has been pretty ordinary lately as revenue growth is non-existent. It might be that many expect the uninspiring revenue performance to worsen, which has repressed the P/S. Those who are bullish on Finetechnix.Ltd will be hoping that this isn't the case, so that they can pick up the stock at a lower valuation.

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 Finetechnix.Ltd's earnings, revenue and cash flow.

What Are Revenue Growth Metrics Telling Us About The Low P/S?

There's an inherent assumption that a company should underperform the industry for P/S ratios like Finetechnix.Ltd's to be considered reasonable.

If we review the last year of revenue, the company posted a result that saw barely any deviation from a year ago. The lack of growth did nothing to help the company's aggregate three-year performance, which is an unsavory 22% drop in revenue. So unfortunately, we have to acknowledge that the company has not done a great job of growing revenue over that time.

Weighing that medium-term revenue trajectory against the broader industry's one-year forecast for expansion of 4.6% shows it's an unpleasant look.

In light of this, it's understandable that Finetechnix.Ltd's P/S would sit below the majority of other companies. However, we think shrinking revenues are unlikely to lead to a stable P/S over the longer term, which could set up shareholders for future disappointment. Even just maintaining these prices could be difficult to achieve as recent revenue trends are already weighing down the shares.

The Key Takeaway

Despite Finetechnix.Ltd's share price climbing recently, its P/S still lags most other companies. Using the price-to-sales ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

Our examination of Finetechnix.Ltd confirms that the company's shrinking revenue over the past medium-term is a key factor in its low price-to-sales ratio, given the industry is projected to grow. At this stage investors feel the potential for an improvement in revenue isn't great enough to justify a higher P/S ratio. Given the current circumstances, it seems unlikely that the share price will experience any significant movement in either direction in the near future if recent medium-term revenue trends persist.

And what about other risks? Every company has them, and we've spotted 2 warning signs for Finetechnix.Ltd (of which 1 shouldn't be ignored!) you should know about.

If you're unsure about the strength of Finetechnix.Ltd'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.