Risks Still Elevated At These Prices As TSE Co., Ltd (KOSDAQ:131290) Shares Dive 25%

TSE Co., Ltd (KOSDAQ:131290) shares have had a horrible month, losing 25% after a relatively good period beforehand. The last month has meant the stock is now only up 2.4% during the last year.

Even after such a large drop in price, there still wouldn't be many who think TSE's price-to-sales (or "P/S") ratio of 2.2x is worth a mention when the median P/S in Korea's Semiconductor industry is similar at about 1.9x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/S.

Check out our latest analysis for TSE

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

TSE could be doing better as its revenue has been going backwards lately while most other companies have been seeing positive revenue growth. It might be that many expect the dour revenue performance to strengthen positively, which has kept the P/S from falling. However, if this isn't the case, investors might get caught out paying too much for the stock.

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

Do Revenue Forecasts Match The P/S Ratio?

TSE's P/S ratio would be typical for a company that's only expected to deliver moderate growth, and importantly, perform in line with the industry.

Retrospectively, the last year delivered a frustrating 13% decrease to the company's top line. The last three years don't look nice either as the company has shrunk revenue by 9.3% in aggregate. Accordingly, shareholders would have felt downbeat about the medium-term rates of revenue growth.

Turning to the outlook, the next three years should generate growth of 17% each year as estimated by the two analysts watching the company. Meanwhile, the rest of the industry is forecast to expand by 31% each year, which is noticeably more attractive.

In light of this, it's curious that TSE's P/S sits in line with the majority of other companies. Apparently many investors in the company are less bearish than analysts indicate and aren't willing to let go of their stock right now. These shareholders may be setting themselves up for future disappointment if the P/S falls to levels more in line with the growth outlook.

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

Following TSE's share price tumble, its P/S is just clinging on to the industry median P/S. 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.

Given that TSE's revenue growth projections are relatively subdued in comparison to the wider industry, it comes as a surprise to see it 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. Circumstances like this present a risk to current and prospective investors who may see share prices fall if the low revenue growth impacts the sentiment.

It is also worth noting that we have found 3 warning signs for TSE (1 is concerning!) that you need to take into consideration.

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

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