Pinning Down SUNIC SYSTEM Co., Ltd.'s (KOSDAQ:171090) P/S Is Difficult Right Now

When close to half the companies in the Semiconductor industry in Korea have price-to-sales ratios (or "P/S") below 1.9x, you may consider SUNIC SYSTEM Co., Ltd. (KOSDAQ:171090) as a stock to potentially avoid with its 3.2x P/S ratio. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's as high as it is.

View our latest analysis for SUNIC SYSTEM

How Has SUNIC SYSTEM Performed Recently?

SUNIC SYSTEM certainly has been doing a good job lately as its revenue growth has been positive while most other companies have been seeing their revenue go backwards. It seems that many are expecting the company to continue defying the broader industry adversity, which has increased investors’ willingness to pay up for the stock. If not, then existing shareholders might be a little nervous about the viability of the share price.

Keen to find out how analysts think SUNIC SYSTEM's future stacks up against the industry? In that case, our free report is a great place to start.

Do Revenue Forecasts Match The High P/S Ratio?

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

Taking a look back first, we see that the company grew revenue by an impressive 57% last year. Despite this strong recent growth, it's still struggling to catch up as its three-year revenue frustratingly shrank by 1.6% overall. 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 59% during the coming year according to the sole analyst following the company. That's shaping up to be materially lower than the 67% growth forecast for the broader industry.

With this information, we find it concerning that SUNIC SYSTEM is trading at a P/S higher than the industry. Apparently many investors in the company are way more bullish than analysts indicate and aren't willing to let go of their stock at any price. There's a good chance these shareholders are setting themselves up for future disappointment if the P/S falls to levels more in line with the growth outlook.

The Final Word

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.

It comes as a surprise to see SUNIC SYSTEM trade at such a high P/S given the revenue forecasts look less than stellar. Right now we aren't comfortable with the high P/S as the predicted future revenues aren't likely to support such positive sentiment for long. This places shareholders' investments at significant risk and potential investors in danger of paying an excessive premium.

We don't want to rain on the parade too much, but we did also find 2 warning signs for SUNIC SYSTEM (1 shouldn't be ignored!) that you need to be mindful of.

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

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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.