Pearl Abyss Corp.'s (KOSDAQ:263750) Stock Retreats 25% But Revenues Haven't Escaped The Attention Of Investors

The Pearl Abyss Corp. (KOSDAQ:263750) share price has fared very poorly over the last month, falling by a substantial 25%. Instead of being rewarded, shareholders who have already held through the last twelve months are now sitting on a 28% share price drop.

Even after such a large drop in price, given around half the companies in Korea's Entertainment industry have price-to-sales ratios (or "P/S") below 1.7x, you may still consider Pearl Abyss as a stock to avoid entirely with its 5.2x P/S ratio. However, the P/S might be quite high for a reason and it requires further investigation to determine if it's justified.

Check out our latest analysis for Pearl Abyss

What Does Pearl Abyss' P/S Mean For Shareholders?

While the industry has experienced revenue growth lately, Pearl Abyss' revenue has gone into reverse gear, which is not great. It might be that many expect the dour revenue performance to recover substantially, which has kept the P/S from collapsing. However, if this isn't the case, investors might get caught out paying too much for the stock.

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Pearl Abyss.

Is There Enough Revenue Growth Forecasted For Pearl Abyss?

Pearl Abyss' P/S ratio would be typical for a company that's expected to deliver very strong growth, and importantly, perform much better than the industry.

In reviewing the last year of financials, we were disheartened to see the company's revenues fell to the tune of 5.9%. This means it has also seen a slide in revenue over the longer-term as revenue is down 15% in total over the last three years. Therefore, it's fair to say the revenue growth recently has been undesirable for the company.

Turning to the outlook, the next year should generate growth of 58% as estimated by the analysts watching the company. With the industry only predicted to deliver 16%, the company is positioned for a stronger revenue result.

In light of this, it's understandable that Pearl Abyss' P/S sits above the majority of other companies. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.

What We Can Learn From Pearl Abyss' P/S?

Pearl Abyss' shares may have suffered, but its P/S remains high. 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 into Pearl Abyss shows that its P/S ratio remains high on the merit of its strong future revenues. Right now shareholders are comfortable with the P/S as they are quite confident future revenues aren't under threat. Unless these conditions change, they will continue to provide strong support to the share price.

A lot of potential risks can sit within a company's balance sheet. Take a look at our free balance sheet analysis for Pearl Abyss with six simple checks on some of these key factors.

If these risks are making you reconsider your opinion on Pearl Abyss, explore our interactive list of high quality stocks to get an idea of what else is out there.

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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.