Stock Analysis
- South Korea
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- Retail Distributors
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- KOSDAQ:A064800
Some Confidence Is Lacking In PonyLink Co., Ltd. (KOSDAQ:064800) As Shares Slide 26%
Unfortunately for some shareholders, the PonyLink Co., Ltd. (KOSDAQ:064800) share price has dived 26% in the last thirty days, prolonging recent pain. Longer-term shareholders would now have taken a real hit with the stock declining 8.2% in the last year.
Even after such a large drop in price, when almost half of the companies in Korea's Retail Distributors industry have price-to-sales ratios (or "P/S") below 0.6x, you may still consider PonyLink as a stock probably not worth researching with its 1.8x P/S ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the elevated P/S.
See our latest analysis for PonyLink
What Does PonyLink's Recent Performance Look Like?
For example, consider that PonyLink's financial performance has been poor lately as its revenue has been in decline. One possibility is that the P/S is high because investors think the company will still do enough to outperform the broader industry in the near future. However, if this isn't the case, investors might get caught out paying too much for the stock.
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 PonyLink's earnings, revenue and cash flow.Do Revenue Forecasts Match The High P/S Ratio?
In order to justify its P/S ratio, PonyLink would need to produce impressive growth in excess of the industry.
Retrospectively, the last year delivered a frustrating 4.8% decrease to the company's top line. This means it has also seen a slide in revenue over the longer-term as revenue is down 27% in total over the last three years. Accordingly, shareholders would have felt downbeat about the medium-term rates of revenue growth.
Weighing that medium-term revenue trajectory against the broader industry's one-year forecast for expansion of 25% shows it's an unpleasant look.
In light of this, it's alarming that PonyLink's P/S sits above the majority of other companies. It seems most investors are ignoring the recent poor growth rate and are hoping for a turnaround in the company's business prospects. 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 We Can Learn From PonyLink's P/S?
There's still some elevation in PonyLink's P/S, even if the same can't be said for its share price recently. We'd say the price-to-sales ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.
We've established that PonyLink currently trades on a much higher than expected P/S since its recent revenues have been in decline over the medium-term. Right now we aren't comfortable with the high P/S as this revenue performance is highly unlikely to support such positive sentiment for long. Unless the recent medium-term conditions improve markedly, investors will have a hard time accepting the share price as fair value.
We don't want to rain on the parade too much, but we did also find 4 warning signs for PonyLink (2 are concerning!) that you need to be mindful of.
Of course, profitable companies with a history of great earnings growth are generally safer bets. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.
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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.
About KOSDAQ:A064800
PonyLink
Primarily engages in the provision of mobility, distribution, and information technology businesses in South Korea and internationally.