VM Inc.'s (KOSDAQ:089970) 29% Cheaper Price Remains In Tune With Revenues

VM Inc. (KOSDAQ:089970) shares have had a horrible month, losing 29% after a relatively good period beforehand. The drop over the last 30 days has capped off a tough year for shareholders, with the share price down 29% in that time.

Although its price has dipped substantially, you could still be forgiven for thinking VM is a stock to steer clear of with a price-to-sales ratios (or "P/S") of 13x, considering almost half the companies in Korea's Semiconductor industry have P/S ratios below 1.9x. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's so lofty.

See our latest analysis for VM

How VM Has Been Performing

While the industry has experienced revenue growth lately, VM's revenue has gone into reverse gear, which is not great. It might be that many expect the dour revenue performance to recover substantially, which has kept the P/S from collapsing. If not, then existing shareholders may be extremely nervous about the viability of the share price.

If you'd like to see what analysts are forecasting going forward, you should check out our free report on VM.

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

VM's P/S ratio would be typical for a company that's expected to deliver very strong growth, and importantly, perform much better than the industry.

Retrospectively, the last year delivered a frustrating 71% decrease to the company's top line. The last three years don't look nice either as the company has shrunk revenue by 85% in aggregate. Therefore, it's fair to say the revenue growth recently has been undesirable for the company.

Looking ahead now, revenue is anticipated to climb by 234% during the coming year according to the one analyst following the company. That's shaping up to be materially higher than the 86% growth forecast for the broader industry.

With this information, we can see why VM is trading at such a high P/S compared to the industry. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.

The Bottom Line On VM's P/S

A significant share price dive has done very little to deflate VM's very lofty P/S. 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.

Our look into VM shows that its P/S ratio remains high on the merit of its strong future revenues. At this stage investors feel the potential for a deterioration in revenues is quite remote, justifying the elevated P/S ratio. Unless the analysts have really missed the mark, these strong revenue forecasts should keep the share price buoyant.

You always need to take note of risks, for example - VM has 2 warning signs we think you should be aware of.

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com