Positive Sentiment Still Eludes CAELUM Co., Ltd. (KOSDAQ:258610) Following 25% Share Price Slump

To the annoyance of some shareholders, CAELUM Co., Ltd. (KOSDAQ:258610) shares are down a considerable 25% in the last month, which continues a horrid run for the company. The recent drop completes a disastrous twelve months for shareholders, who are sitting on a 72% loss during that time.

Following the heavy fall in price, CAELUM's price-to-sales (or "P/S") ratio of 0.3x might 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 0.9x 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 CAELUM

What Does CAELUM's Recent Performance Look Like?

For example, consider that CAELUM's financial performance has been poor lately as its revenue has been in decline. It might be that many expect the disappointing revenue performance to continue or accelerate, which has repressed the P/S. Those who are bullish on CAELUM will be hoping that this isn't the case so that they can pick up the stock at a lower valuation.

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

How Is CAELUM's Revenue Growth Trending?

CAELUM'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.

Taking a look back first, the company's revenue growth last year wasn't something to get excited about as it posted a disappointing decline of 5.7%. However, a few very strong years before that means that it was still able to grow revenue by an impressive 68% in total over the last three years. Accordingly, while they would have preferred to keep the run going, shareholders would definitely welcome the medium-term rates of revenue growth.

When compared to the industry's one-year growth forecast of 14%, the most recent medium-term revenue trajectory is noticeably more alluring

In light of this, it's peculiar that CAELUM's P/S sits below the majority of other companies. Apparently some shareholders believe the recent performance has exceeded its limits and have been accepting significantly lower selling prices.

The Final Word

CAELUM's P/S has taken a dip along with its share price. 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.

We're very surprised to see CAELUM currently trading on a much lower than expected P/S since its recent three-year growth is higher than the wider industry forecast. When we see strong revenue with faster-than-industry growth, we assume there are some significant underlying risks to the company's ability to make money which is applying downwards pressure on the P/S ratio. At least price risks look to be very low if recent medium-term revenue trends continue, but investors seem to think future revenue could see a lot of volatility.

Before you take the next step, you should know about the 2 warning signs for CAELUM (1 shouldn't be ignored!) that we have uncovered.

Of course, profitable companies with a history of great earnings growth are generally safer bets. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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

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.