Risks Still Elevated At These Prices As ES Cube Co., Ltd. (KOSDAQ:050120) Shares Dive 29%

ES Cube Co., Ltd. (KOSDAQ:050120) shareholders that were waiting for something to happen have been dealt a blow with a 29% share price drop in the last month. The recent drop completes a disastrous twelve months for shareholders, who are sitting on a 55% loss during that time.

Although its price has dipped substantially, you could still be forgiven for feeling indifferent about ES Cube's P/S ratio of 0.4x, since the median price-to-sales (or "P/S") ratio for the Leisure industry in Korea is also close to 0.6x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/S.

View our latest analysis for ES Cube

What Does ES Cube's Recent Performance Look Like?

As an illustration, revenue has deteriorated at ES Cube over the last year, which is not ideal at all. Perhaps investors believe the recent revenue performance is enough to keep in line with the industry, which is keeping the P/S from dropping off. If you like the company, you'd at least be hoping this is the case so that you could potentially pick up some stock while it's not quite in favour.

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

Do Revenue Forecasts Match The P/S Ratio?

In order to justify its P/S ratio, ES Cube would need to produce growth that's similar to the industry.

Retrospectively, the last year delivered a frustrating 30% decrease to the company's top line. As a result, revenue from three years ago have also fallen 42% overall. So unfortunately, we have to acknowledge that the company has not done a great job of growing revenue over that time.

Comparing that to the industry, which is predicted to deliver 11% growth in the next 12 months, the company's downward momentum based on recent medium-term revenue results is a sobering picture.

With this in mind, we find it worrying that ES Cube's P/S exceeds that of its industry peers. Apparently many investors in the company are way less bearish than recent times would indicate and aren't willing to let go of their stock right now. There's a good chance existing shareholders are setting themselves up for future disappointment if the P/S falls to levels more in line with the recent negative growth rates.

What Does ES Cube's P/S Mean For Investors?

With its share price dropping off a cliff, the P/S for ES Cube looks to be in line with the rest of the Leisure industry. We'd say the price-to-sales ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

Our look at ES Cube revealed its shrinking revenues over the medium-term haven't impacted the P/S as much as we anticipated, given the industry is set to grow. When we see revenue heading backwards in the context of growing industry forecasts, it'd make sense to expect a possible share price decline on the horizon, sending the moderate P/S lower. Unless the recent medium-term conditions improve markedly, investors will have a hard time accepting the share price as fair value.

Don't forget that there may be other risks. For instance, we've identified 1 warning sign for ES Cube that you should be aware of.

If you're unsure about the strength of ES Cube'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.

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