UniTest Incorporation's (KOSDAQ:086390) Shareholders Might Be Looking For Exit

With a median price-to-sales (or "P/S") ratio of close to 1.9x in the Semiconductor industry in Korea, you could be forgiven for feeling indifferent about UniTest Incorporation's (KOSDAQ:086390) P/S ratio of 1.5x. While this might not raise any eyebrows, if the P/S ratio is not justified investors could be missing out on a potential opportunity or ignoring looming disappointment.

See our latest analysis for UniTest Incorporation

What Does UniTest Incorporation's P/S Mean For Shareholders?

With revenue growth that's exceedingly strong of late, UniTest Incorporation has been doing very well. The P/S is probably moderate because investors think this strong revenue growth might not be enough to outperform the broader industry in the near future. If that doesn't eventuate, then existing shareholders have reason to be feeling optimistic about the future direction of the share price.

Want the full picture on earnings, revenue and cash flow for the company? Then our free report on UniTest Incorporation will help you shine a light on its historical performance.

How Is UniTest Incorporation's Revenue Growth Trending?

The only time you'd be comfortable seeing a P/S like UniTest Incorporation's is when the company's growth is tracking the industry closely.

Retrospectively, the last year delivered an exceptional 119% gain to the company's top line. Pleasingly, revenue has also lifted 85% in aggregate from three years ago, thanks to the last 12 months of growth. So we can start by confirming that the company has done a great job of growing revenue over that time.

Comparing the recent medium-term revenue trends against the industry's one-year growth forecast of 68% shows it's noticeably less attractive.

With this information, we find it interesting that UniTest Incorporation is trading at a fairly similar P/S compared to the industry. It seems most investors are ignoring the fairly limited recent growth rates and are willing to pay up for exposure to the stock. They may be setting themselves up for future disappointment if the P/S falls to levels more in line with recent growth rates.

The Key Takeaway

Generally, our preference is to limit the use of the price-to-sales ratio to establishing what the market thinks about the overall health of a company.

Our examination of UniTest Incorporation revealed its poor three-year revenue trends aren't resulting in a lower P/S as per our expectations, given they look worse than current industry outlook. Right now we are uncomfortable with the P/S as this revenue performance isn't likely to support a more positive sentiment for long. If recent medium-term revenue trends continue, the probability of a share price decline will become quite substantial, placing shareholders at risk.

And what about other risks? Every company has them, and we've spotted 1 warning sign for UniTest Incorporation you should know about.

If you're unsure about the strength of UniTest Incorporation's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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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.