Revenues Not Telling The Story For TSE Co., Ltd (KOSDAQ:131290) After Shares Rise 28%

Those holding TSE Co., Ltd (KOSDAQ:131290) shares would be relieved that the share price has rebounded 28% in the last thirty days, but it needs to keep going to repair the recent damage it has caused to investor portfolios. The bad news is that even after the stocks recovery in the last 30 days, shareholders are still underwater by about 7.0% over the last year.

In spite of the firm bounce in price, you could still be forgiven for feeling indifferent about TSE's P/S ratio of 1.5x, since the median price-to-sales (or "P/S") ratio for the Semiconductor industry in Korea is also close to 1.2x. 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.

Check out our latest analysis for TSE

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

With revenue growth that's inferior to most other companies of late, TSE has been relatively sluggish. One possibility is that the P/S ratio is moderate because investors think this lacklustre revenue performance will turn around. However, if this isn't the case, investors might get caught out paying too much for the stock.

Want the full picture on analyst estimates for the company? Then our free report on TSE will help you uncover what's on the horizon.

Is There Some Revenue Growth Forecasted For TSE?

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

If we review the last year of revenue growth, the company posted a terrific increase of 21%. Revenue has also lifted 11% in aggregate from three years ago, mostly thanks to the last 12 months of growth. So we can start by confirming that the company has actually done a good job of growing revenue over that time.

Shifting to the future, estimates from the dual analysts covering the company suggest revenue should grow by 11% over the next year. With the industry predicted to deliver 44% growth, the company is positioned for a weaker revenue result.

With this information, we find it interesting that TSE is trading at a fairly similar P/S compared to the industry. It seems most investors are ignoring the fairly limited growth expectations and are willing to pay up for exposure to the stock. Maintaining these prices will be difficult to achieve as this level of revenue growth is likely to weigh down the shares eventually.

What We Can Learn From TSE's P/S?

TSE appears to be back in favour with a solid price jump bringing its P/S back in line with other companies in the industry 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.

When you consider that TSE's revenue growth estimates are fairly muted compared to the broader industry, it's easy to see why we consider it unexpected to be trading at its current P/S ratio. When we see companies with a relatively weaker revenue outlook compared to the industry, we suspect the share price is at risk of declining, sending the moderate P/S lower. A positive change is needed in order to justify the current price-to-sales ratio.

The company's balance sheet is another key area for risk analysis. Our free balance sheet analysis for TSE with six simple checks will allow you to discover any risks that could be an issue.

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.