Risks Still Elevated At These Prices As MNtech Co., Ltd. (KOSDAQ:095500) Shares Dive 26%

MNtech Co., Ltd. (KOSDAQ:095500) shareholders that were waiting for something to happen have been dealt a blow with a 26% share price drop in the last month. The drop over the last 30 days has capped off a tough year for shareholders, with the share price down 50% in that time.

Even after such a large drop in price, it's still not a stretch to say that MNtech's price-to-sales (or "P/S") ratio of 0.3x right now seems quite "middle-of-the-road" compared to the Chemicals industry in Korea, where the median P/S ratio is around 0.6x. 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.

See our latest analysis for MNtech

What Does MNtech's P/S Mean For Shareholders?

The revenue growth achieved at MNtech over the last year would be more than acceptable for most companies. 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. Those who are bullish on MNtech will be hoping that this isn't the case, so that they can pick up the stock at a lower valuation.

Want the full picture on earnings, revenue and cash flow for the company? Then our free report on MNtech will help you shine a light on its historical performance.

How Is MNtech's Revenue Growth Trending?

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

Taking a look back first, we see that the company managed to grow revenues by a handy 8.8% last year. This was backed up an excellent period prior to see revenue up by 44% in total over the last three years. So we can start by confirming that the company has done a great job of growing revenues over that time.

Comparing the recent medium-term revenue trends against the industry's one-year growth forecast of 30% shows it's noticeably less attractive.

With this information, we find it interesting that MNtech is trading at a fairly similar P/S compared to the industry. It seems most investors are ignoring the fairly limited recent growth rates and are willing to pay up for exposure to the stock. Maintaining these prices will be difficult to achieve as a continuation of recent revenue trends is likely to weigh down the shares eventually.

What We Can Learn From MNtech's P/S?

With its share price dropping off a cliff, the P/S for MNtech looks to be in line with the rest of the Chemicals industry. 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've established that MNtech's average P/S is a bit surprising since its recent three-year growth is lower than the wider industry forecast. 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.

There are also other vital risk factors to consider before investing and we've discovered 1 warning sign for MNtech that you should be aware of.

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).

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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.