Netmarble Corporation's (KRX:251270) Shares May Have Run Too Fast Too Soon

Explore Netmarble's Fair Values from the Community and select yours

There wouldn't be many who think Netmarble Corporation's (KRX:251270) price-to-sales (or "P/S") ratio of 1.8x is worth a mention when the median P/S for the Entertainment industry in Korea is similar at about 2.1x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/S.

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View our latest analysis for Netmarble

How Netmarble Has Been Performing

With revenue growth that's inferior to most other companies of late, Netmarble has been relatively sluggish. It might be that many expect the uninspiring revenue performance to strengthen positively, which has kept the P/S ratio from falling. However, if this isn't the case, investors might get caught out paying too much for the stock.

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

Is There Some Revenue Growth Forecasted For Netmarble?

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

Retrospectively, the last year delivered a decent 8.8% gain to the company's revenues. The solid recent performance means it was also able to grow revenue by 5.2% in total over the last three years. Accordingly, shareholders would have probably been satisfied with the medium-term rates of revenue growth.

Looking ahead now, revenue is anticipated to climb by 5.2% during the coming year according to the analysts following the company. Meanwhile, the rest of the industry is forecast to expand by 17%, which is noticeably more attractive.

In light of this, it's curious that Netmarble's P/S sits in line with the majority of other companies. Apparently many investors in the company are less bearish than analysts indicate and aren't willing to let go of their stock right now. Maintaining these prices will be difficult to achieve as this level of revenue growth is likely to weigh down the shares eventually.

The Key Takeaway

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.

Given that Netmarble's revenue growth projections are relatively subdued in comparison to the wider industry, it comes as a surprise to see it trading at its current P/S ratio. When we see companies with a relatively weaker revenue outlook compared to the industry, we suspect the share price is at risk of declining, sending the moderate P/S lower. Circumstances like this present a risk to current and prospective investors who may see share prices fall if the low revenue growth impacts the sentiment.

Don't forget that there may be other risks. For instance, we've identified 1 warning sign for Netmarble that you should be aware of.

If strong companies turning a profit tickle your fancy, then you'll want to check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).

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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.