Improved Revenues Required Before SIMMTECH Co., Ltd. (KOSDAQ:222800) Stock's 60% Jump Looks Justified

Despite an already strong run, SIMMTECH Co., Ltd. (KOSDAQ:222800) shares have been powering on, with a gain of 60% in the last thirty days. Unfortunately, the gains of the last month did little to right the losses of the last year with the stock still down 28% over that time.

Although its price has surged higher, it would still be understandable if you think SIMMTECH is a stock with good investment prospects with a price-to-sales ratios (or "P/S") of 0.5x, considering almost half the companies in Korea's Semiconductor industry have P/S ratios above 1.4x. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/S.

Check out our latest analysis for SIMMTECH

How Has SIMMTECH Performed Recently?

SIMMTECH could be doing better as it's been growing revenue less than most other companies lately. It seems that many are expecting the uninspiring revenue performance to persist, which has repressed the growth of the P/S ratio. If this is the case, then existing shareholders will probably struggle to get excited about the future direction of the share price.

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

Is There Any Revenue Growth Forecasted For SIMMTECH?

The only time you'd be truly comfortable seeing a P/S as low as SIMMTECH's is when the company's growth is on track to lag the industry.

Retrospectively, the last year delivered a decent 14% gain to the company's revenues. Ultimately though, it couldn't turn around the poor performance of the prior period, with revenue shrinking 2.0% in total over the last three years. Accordingly, shareholders would have felt downbeat about the medium-term rates of revenue growth.

Turning to the outlook, the next year should generate growth of 0.3% as estimated by the seven analysts watching the company. That's shaping up to be materially lower than the 40% growth forecast for the broader industry.

With this in consideration, its clear as to why SIMMTECH's P/S is falling short industry peers. Apparently many shareholders weren't comfortable holding on while the company is potentially eyeing a less prosperous future.

The Key Takeaway

SIMMTECH's stock price has surged recently, but its but its P/S still remains modest. 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.

As expected, our analysis of SIMMTECH's analyst forecasts confirms that the company's underwhelming revenue outlook is a major contributor to its low P/S. At this stage investors feel the potential for an improvement in revenue isn't great enough to justify a higher P/S ratio. The company will need a change of fortune to justify the P/S rising higher in the future.

And what about other risks? Every company has them, and we've spotted 2 warning signs for SIMMTECH (of which 1 makes us a bit uncomfortable!) you should know about.

Of course, profitable companies with a history of great earnings growth are generally safer bets. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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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.