There's Reason For Concern Over Logisys Inc.'s (KOSDAQ:067730) Price

There wouldn't be many who think Logisys Inc.'s (KOSDAQ:067730) price-to-sales (or "P/S") ratio of 0.7x is worth a mention when the median P/S for the Commercial Services industry in Korea is similar at about 1x. Although, it's not wise to simply ignore the P/S without explanation as investors may be disregarding a distinct opportunity or a costly mistake.

Check out our latest analysis for Logisys

What Does Logisys' P/S Mean For Shareholders?

Revenue has risen firmly for Logisys recently, which is pleasing to see. Perhaps the market is expecting future revenue performance to only keep up with the broader industry, which has keeping the P/S in line with expectations. If that doesn't eventuate, then existing shareholders probably aren't too pessimistic about the future direction of the share price.

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

How Is Logisys' Revenue Growth Trending?

The only time you'd be comfortable seeing a P/S like Logisys' is when the company's growth is tracking the industry closely.

If we review the last year of revenue growth, the company posted a terrific increase of 25%. Revenue has also lifted 28% in aggregate from three years ago, mostly thanks to the last 12 months of growth. Therefore, it's fair to say the revenue growth recently has been respectable for the company.

Comparing that to the industry, which is predicted to deliver 12% growth in the next 12 months, the company's momentum is weaker, based on recent medium-term annualised revenue results.

With this information, we find it interesting that Logisys is trading at a fairly similar P/S compared to the industry. Apparently many investors in the company are less bearish than recent times would indicate and aren't willing to let go of their stock right now. They may be setting themselves up for future disappointment if the P/S falls to levels more in line with recent growth rates.

What We Can Learn From Logisys' P/S?

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 Logisys revealed its poor three-year revenue trends aren't resulting in a lower P/S as per our expectations, given they look worse than current industry outlook. Right now we are uncomfortable with the P/S as this revenue performance isn't likely to support a more positive sentiment for long. Unless there is a significant improvement in the company's medium-term performance, it will be difficult to prevent the P/S ratio from declining to a more reasonable level.

And what about other risks? Every company has them, and we've spotted 1 warning sign for Logisys you should know about.

It's important to make sure you look for a great company, not just the first idea you come across. So if growing profitability aligns with your idea of a great company, take a peek at this free list of interesting companies with strong recent earnings growth (and a low P/E).

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.