Why We're Not Concerned Yet About Wemade Co.,Ltd.'s (KOSDAQ:112040) 26% Share Price Plunge

Unfortunately for some shareholders, the Wemade Co.,Ltd. (KOSDAQ:112040) share price has dived 26% in the last thirty days, prolonging recent pain. The drop over the last 30 days has capped off a tough year for shareholders, with the share price down 17% in that time.

In spite of the heavy fall in price, you could still be forgiven for feeling indifferent about WemadeLtd's P/S ratio of 1.6x, since the median price-to-sales (or "P/S") ratio for the Entertainment industry in Korea is also close to 1.3x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/S.

Check out our latest analysis for WemadeLtd

What Does WemadeLtd's Recent Performance Look Like?

WemadeLtd certainly has been doing a good job lately as it's been growing revenue more than most other companies. Perhaps the market is expecting this level of performance to taper off, keeping the P/S from soaring. If the company manages to stay the course, then investors should be rewarded with a share price that matches its revenue figures.

Keen to find out how analysts think WemadeLtd's future stacks up against the industry? In that case, our free report is a great place to start.

Do Revenue Forecasts Match The P/S Ratio?

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

Taking a look back first, we see that the company grew revenue by an impressive 58% last year. The latest three year period has also seen an excellent 291% overall rise in revenue, aided by its short-term performance. Therefore, it's fair to say the revenue growth recently has been superb for the company.

Looking ahead now, revenue is anticipated to climb by 18% during the coming year according to the five analysts following the company. That's shaping up to be similar to the 19% growth forecast for the broader industry.

With this in mind, it makes sense that WemadeLtd's P/S is closely matching its industry peers. It seems most investors are expecting to see average future growth and are only willing to pay a moderate amount for the stock.

The Bottom Line On WemadeLtd's P/S

With its share price dropping off a cliff, the P/S for WemadeLtd looks to be in line with the rest of the Entertainment 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.

Our look at WemadeLtd's revenue growth estimates show that its P/S is about what we expect, as both metrics follow closely with the industry averages. At this stage investors feel the potential for an improvement or deterioration in revenue isn't great enough to push P/S in a higher or lower direction. Unless these conditions change, they will continue to support the share price at these levels.

The company's balance sheet is another key area for risk analysis. Our free balance sheet analysis for WemadeLtd with six simple checks will allow you to discover any risks that could be an issue.

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.