Some Philoptics Co., Ltd. (KOSDAQ:161580) Shareholders Look For Exit As Shares Take 25% Pounding

Philoptics Co., Ltd. (KOSDAQ:161580) shares have had a horrible month, losing 25% after a relatively good period beforehand. Still, a bad month hasn't completely ruined the past year with the stock gaining 81%, which is great even in a bull market.

In spite of the heavy fall in price, it's still not a stretch to say that Philoptics' price-to-sales (or "P/S") ratio of 2x right now seems quite "middle-of-the-road" compared to the Semiconductor industry in Korea, where the median P/S ratio is around 1.9x. Although, it's not wise to simply ignore the P/S without explanation as investors may be disregarding a distinct opportunity or a costly mistake.

Check out our latest analysis for Philoptics

What Does Philoptics' Recent Performance Look Like?

For instance, Philoptics' receding revenue in recent times would have to be some food for thought. One possibility is that the P/S is moderate because investors think the company might still do enough to be in line with the broader industry in the near future. If not, then existing shareholders may be a little nervous about the viability of the share price.

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

How Is Philoptics' Revenue Growth Trending?

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

In reviewing the last year of financials, we were disheartened to see the company's revenues fell to the tune of 39%. Still, the latest three year period has seen an excellent 33% overall rise in revenue, in spite of its unsatisfying short-term performance. Although it's been a bumpy ride, it's still fair to say the revenue growth recently has been more than adequate for the company.

Comparing the recent medium-term revenue trends against the industry's one-year growth forecast of 84% shows it's noticeably less attractive.

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

The Final Word

Philoptics' plummeting stock price has brought its P/S back to a similar region as the rest of the industry. Using the price-to-sales ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

We've established that Philoptics' average P/S is a bit surprising since its recent three-year growth is lower than the wider industry forecast. When we see weak revenue with slower than industry growth, we suspect the share price is at risk of declining, bringing the P/S back in line with expectations. Unless the recent medium-term conditions improve, it's hard to accept the current share price as fair value.

And what about other risks? Every company has them, and we've spotted 3 warning signs for Philoptics (of which 1 is a bit unpleasant!) you should know about.

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

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

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