Artist United Inc.'s (KOSDAQ:321820) 25% Share Price Plunge Could Signal Some Risk

The Artist United Inc. (KOSDAQ:321820) share price has softened a substantial 25% over the previous 30 days, handing back much of the gains the stock has made lately. Of course, over the longer-term many would still wish they owned shares as the stock's price has soared 182% in the last twelve months.

Even after such a large drop in price, when almost half of the companies in Korea's Media industry have price-to-sales ratios (or "P/S") below 1.4x, you may still consider Artist United as a stock not worth researching with its 8.8x 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 Artist United

What Does Artist United's Recent Performance Look Like?

As an illustration, revenue has deteriorated at Artist United over the last year, which is not ideal at all. It might be that many expect the company to still outplay most other companies over the coming period, which has kept the P/S from collapsing. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

We don't have analyst forecasts, but you can see how recent trends are setting up the company for the future by checking out our free report on Artist United's earnings, revenue and cash flow.

How Is Artist United's Revenue Growth Trending?

The only time you'd be truly comfortable seeing a P/S as steep as Artist United's is when the company's growth is on track to outshine the industry decidedly.

In reviewing the last year of financials, we were disheartened to see the company's revenues fell to the tune of 16%. The last three years don't look nice either as the company has shrunk revenue by 32% in aggregate. Accordingly, shareholders would have felt downbeat about the medium-term rates of revenue growth.

In contrast to the company, the rest of the industry is expected to grow by 2.7% over the next year, which really puts the company's recent medium-term revenue decline into perspective.

With this in mind, we find it worrying that Artist United's P/S exceeds that of its industry peers. Apparently many investors in the company are way more bullish than recent times would indicate and aren't willing to let go of their stock at any price. Only the boldest would assume these prices are sustainable as a continuation of recent revenue trends is likely to weigh heavily on the share price eventually.

What Does Artist United's P/S Mean For Investors?

A significant share price dive has done very little to deflate Artist United's very lofty P/S. It's argued the price-to-sales ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

We've established that Artist United currently trades on a much higher than expected P/S since its recent revenues have been in decline over the medium-term. When we see revenue heading backwards and underperforming the industry forecasts, we feel the possibility of the share price declining is very real, bringing the P/S back into the realm of reasonability. Unless the recent medium-term conditions improve markedly, investors will have a hard time accepting the share price as fair value.

You need to take note of risks, for example - Artist United has 3 warning signs (and 2 which are concerning) we think you should know about.

If companies with solid past earnings growth is up your alley, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

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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.