Okins Electronics Co., Ltd. (KOSDAQ:080580) Shares May Have Slumped 26% But Getting In Cheap Is Still Unlikely

Okins Electronics Co., Ltd. (KOSDAQ:080580) shares have retraced a considerable 26% in the last month, reversing a fair amount of their solid recent performance. For any long-term shareholders, the last month ends a year to forget by locking in a 50% share price decline.

In spite of the heavy fall in price, you could still be forgiven for thinking Okins Electronics is a stock not worth researching with a price-to-sales ratios (or "P/S") of 3.3x, considering almost half the companies in Korea's Semiconductor industry have P/S ratios below 1.8x. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's as high as it is.

See our latest analysis for Okins Electronics

How Okins Electronics Has Been Performing

For example, consider that Okins Electronics' 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. If not, then existing shareholders may be quite nervous about the viability of the share price.

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

What Are Revenue Growth Metrics Telling Us About The High P/S?

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

Taking a look back first, the company's revenue growth last year wasn't something to get excited about as it posted a disappointing decline of 20%. Regardless, revenue has managed to lift by a handy 16% in aggregate from three years ago, thanks to the earlier period of growth. Although it's been a bumpy ride, it's still fair to say the revenue growth recently has been mostly respectable for the company.

Comparing that to the industry, which is predicted to deliver 66% growth in the next 12 months, the company's momentum is weaker, based on recent medium-term annualised revenue results.

With this information, we find it concerning that Okins Electronics is trading at a P/S higher than the industry. It seems most investors are ignoring the fairly limited recent growth rates 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 Does Okins Electronics' P/S Mean For Investors?

There's still some elevation in Okins Electronics' P/S, even if the same can't be said for its share price recently. 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.

The fact that Okins Electronics currently trades on a higher P/S relative to the industry is an oddity, since its recent three-year growth is lower than the wider industry forecast. When we see slower than industry revenue growth but an elevated P/S, there's considerable risk of the share price declining, sending the P/S lower. Unless the recent medium-term conditions improve markedly, it's very challenging to accept these the share price as being reasonable.

You should always think about risks. Case in point, we've spotted 3 warning signs for Okins Electronics you should be aware of, and 2 of them are a bit unpleasant.

If these risks are making you reconsider your opinion on Okins Electronics, 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.