Protec Mems Technology Inc.'s (KOSDAQ:147760) 27% Price Boost Is Out Of Tune With Revenues

Protec Mems Technology Inc. (KOSDAQ:147760) shareholders are no doubt pleased to see that the share price has bounced 27% in the last month, although it is still struggling to make up recently lost ground. Not all shareholders will be feeling jubilant, since the share price is still down a very disappointing 20% in the last twelve months.

Although its price has surged higher, it's still not a stretch to say that Protec Mems Technology's price-to-sales (or "P/S") ratio of 1.3x right now seems quite "middle-of-the-road" compared to the Semiconductor industry in Korea, where the median P/S ratio is around 1.5x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/S.

See our latest analysis for Protec Mems Technology

How Has Protec Mems Technology Performed Recently?

Revenue has risen at a steady rate over the last year for Protec Mems Technology, which is generally not a bad outcome. One possibility is that the P/S is moderate because investors think this good revenue growth might only be parallel to the broader industry in the near future. If you like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's not quite in favour.

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

Do Revenue Forecasts Match The P/S Ratio?

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

If we review the last year of revenue growth, the company posted a worthy increase of 4.1%. However, this wasn't enough as the latest three year period has seen an unpleasant 48% overall drop in revenue. Therefore, it's fair to say the revenue growth recently has been undesirable for the company.

Weighing that medium-term revenue trajectory against the broader industry's one-year forecast for expansion of 66% shows it's an unpleasant look.

In light of this, it's somewhat alarming that Protec Mems Technology's P/S sits in line with the majority of other companies. Apparently many investors in the company are way less bearish than recent times would indicate and aren't willing to let go of their stock right now. Only the boldest would assume these prices are sustainable as a continuation of recent revenue trends is likely to weigh on the share price eventually.

What We Can Learn From Protec Mems Technology's P/S?

Its shares have lifted substantially and now Protec Mems Technology's P/S is back within range of the industry median. While the price-to-sales ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of revenue expectations.

Our look at Protec Mems Technology revealed its shrinking revenues over the medium-term haven't impacted the P/S as much as we anticipated, given the industry is set to grow. Even though it matches the industry, we're uncomfortable with the current P/S ratio, as this dismal revenue performance is unlikely to support a more positive sentiment for long. Unless the recent medium-term conditions improve markedly, investors will have a hard time accepting the share price as fair value.

You should always think about risks. Case in point, we've spotted 3 warning signs for Protec Mems Technology you should be aware of, and 1 of them doesn't sit too well with us.

If these risks are making you reconsider your opinion on Protec Mems Technology, 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.