SIMMTECH Co., Ltd.'s (KOSDAQ:222800) Shares Lagging The Industry But So Is The Business

When you see that almost half of the companies in the Semiconductor industry in Korea have price-to-sales ratios (or "P/S") above 2.1x, SIMMTECH Co., Ltd. (KOSDAQ:222800) looks to be giving off some buy signals with its 1x 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 limited.

See our latest analysis for SIMMTECH

What Does SIMMTECH's Recent Performance Look Like?

SIMMTECH has been struggling lately as its revenue has declined faster than most other companies. The P/S ratio is probably low because investors think this poor revenue performance isn't going to improve at all. If you still like the company, you'd want its revenue trajectory to turn around before making any decisions. If not, then existing shareholders will probably struggle to get excited about the future direction of the share price.

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

How Is SIMMTECH's Revenue Growth Trending?

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 frustrating 39% decrease to the company's top line. As a result, revenue from three years ago have also fallen 13% overall. So unfortunately, we have to acknowledge that the company has not done a great job of growing revenue over that time.

Looking ahead now, revenue is anticipated to climb by 13% each year during the coming three years according to the six analysts following the company. Meanwhile, the rest of the industry is forecast to expand by 45% per annum, which is noticeably more attractive.

With this information, we can see why SIMMTECH is trading at a P/S lower than the industry. It seems most investors are expecting to see limited future growth and are only willing to pay a reduced amount for the stock.

What Does SIMMTECH's P/S Mean For Investors?

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 SIMMTECH maintains its low P/S on the weakness of its forecast growth being lower than the wider industry, as expected. Right now shareholders are accepting the low P/S as they concede future revenue probably won't provide any pleasant surprises. Unless these conditions improve, they will continue to form a barrier for the share price around these levels.

Don't forget that there may be other risks. For instance, we've identified 1 warning sign for SIMMTECH that you should be aware of.

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.