Nano Chem Tech Inc.'s (KOSDAQ:091970) Business Is Trailing The Industry But Its Shares Aren't

There wouldn't be many who think Nano Chem Tech Inc.'s (KOSDAQ:091970) price-to-sales (or "P/S") ratio of 0.4x is worth a mention when the median P/S for the Chemicals industry in Korea is similar at about 0.6x. While this might not raise any eyebrows, if the P/S ratio is not justified investors could be missing out on a potential opportunity or ignoring looming disappointment.

See our latest analysis for Nano Chem Tech

What Does Nano Chem Tech's P/S Mean For Shareholders?

The revenue growth achieved at Nano Chem Tech over the last year would be more than acceptable for most companies. It might be that many expect the respectable revenue performance to wane, which has kept the P/S from rising. Those who are bullish on Nano Chem Tech 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 Nano Chem Tech, take a look at this free data-rich visualisation to see how the company stacks up on earnings, revenue and cash flow.

How Is Nano Chem Tech's Revenue Growth Trending?

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

Retrospectively, the last year delivered an exceptional 22% gain to the company's top line. Revenue has also lifted 22% in aggregate from three years ago, mostly thanks to the last 12 months of growth. So we can start by confirming that the company has actually done a good job of growing revenue over that time.

This is in contrast to the rest of the industry, which is expected to grow by 11% over the next year, materially higher than the company's recent medium-term annualised growth rates.

With this in mind, we find it intriguing that Nano Chem Tech's P/S is comparable to that of its industry peers. It seems most investors are ignoring the fairly limited recent growth rates and are willing to pay up for exposure to the stock. They may be setting themselves up for future disappointment if the P/S falls to levels more in line with recent growth rates.

What Does Nano Chem Tech's P/S Mean For Investors?

Generally, our preference is to limit the use of the price-to-sales ratio to establishing what the market thinks about the overall health of a company.

Our examination of Nano Chem Tech 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. If recent medium-term revenue trends continue, the probability of a share price decline will become quite substantial, placing shareholders at risk.

It is also worth noting that we have found 3 warning signs for Nano Chem Tech (1 is a bit unpleasant!) that you need to take into consideration.

If you're unsure about the strength of Nano Chem Tech'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.