Improved Revenues Required Before INVENIA Co., Ltd. (KOSDAQ:079950) Shares Find Their Feet

When you see that almost half of the companies in the Semiconductor industry in Korea have price-to-sales ratios (or "P/S") above 1.3x, INVENIA Co., Ltd. (KOSDAQ:079950) looks to be giving off some buy signals with its 0.4x P/S ratio. However, the P/S might be low for a reason and it requires further investigation to determine if it's justified.

Check out our latest analysis for INVENIA

What Does INVENIA's P/S Mean For Shareholders?

With revenue growth that's exceedingly strong of late, INVENIA has been doing very well. Perhaps the market is expecting future revenue performance to dwindle, which has kept the P/S suppressed. Those who are bullish on INVENIA will be hoping that this isn't the case, so that they can pick up the stock at a lower valuation.

Although there are no analyst estimates available for INVENIA, take a look at this free data-rich visualisation to see how the company stacks up on earnings, revenue and cash flow.

How Is INVENIA's Revenue Growth Trending?

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

Retrospectively, the last year delivered an exceptional 211% gain to the company's top line. Still, revenue has fallen 78% in total from three years ago, which is quite disappointing. So unfortunately, we have to acknowledge that the company has not done a great job of growing revenues over that time.

In contrast to the company, the rest of the industry is expected to grow by 31% over the next year, which really puts the company's recent medium-term revenue decline into perspective.

In light of this, it's understandable that INVENIA's P/S would sit below the majority of other companies. Nonetheless, there's no guarantee the P/S has reached a floor yet with revenue going in reverse. There's potential for the P/S to fall to even lower levels if the company doesn't improve its top-line growth.

The Key Takeaway

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.

As we suspected, our examination of INVENIA revealed its shrinking revenue over the medium-term is contributing to its low P/S, given the industry is set to grow. Right now shareholders are accepting the low P/S as they concede future revenue probably won't provide any pleasant surprises either. Unless the recent medium-term conditions improve, they will continue to form a barrier for the share price around these levels.

It's always necessary to consider the ever-present spectre of investment risk. We've identified 3 warning signs with INVENIA, and understanding them should be part of your investment process.

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.