Lacklustre Performance Is Driving PIMS Inc.'s (KOSDAQ:347770) 34% Price Drop

To the annoyance of some shareholders, PIMS Inc. (KOSDAQ:347770) shares are down a considerable 34% in the last month, which continues a horrid run for the company. For any long-term shareholders, the last month ends a year to forget by locking in a 66% share price decline.

Even after such a large drop in price, given about half the companies operating in Korea's Semiconductor industry have price-to-sales ratios (or "P/S") above 1.6x, you may still consider PIMS as an attractive investment with its 0.6x 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.

Check out our latest analysis for PIMS

How PIMS Has Been Performing

As an illustration, revenue has deteriorated at PIMS over the last year, which is not ideal at all. It might be that many expect the disappointing revenue performance to continue or accelerate, which has repressed the P/S. Those who are bullish on PIMS will be hoping that this isn't the case so that they can pick up the stock at a lower valuation.

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

Is There Any Revenue Growth Forecasted For PIMS?

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

Retrospectively, the last year delivered a frustrating 17% decrease to the company's top line. However, a few very strong years before that means that it was still able to grow revenue by an impressive 77% in total over the last three years. So we can start by confirming that the company has generally done a very good job of growing revenue over that time, even though it had some hiccups along the way.

This is in contrast to the rest of the industry, which is expected to grow by 88% over the next year, materially higher than the company's recent medium-term annualised growth rates.

In light of this, it's understandable that PIMS' P/S sits below the majority of other companies. Apparently many shareholders weren't comfortable holding on to something they believe will continue to trail the wider industry.

The Key Takeaway

The southerly movements of PIMS' shares means its P/S is now sitting at a pretty low level. 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.

In line with expectations, PIMS maintains its low P/S on the weakness of its recent three-year growth being lower than the wider industry forecast. Right now shareholders are accepting the low P/S as they concede future revenue probably won't provide any pleasant surprises. If recent medium-term revenue trends continue, it's hard to see the share price experience a reversal of fortunes anytime soon.

Having said that, be aware PIMS is showing 4 warning signs in our investment analysis, and 1 of those is concerning.

It's important to make sure you look for a great company, not just the first idea you come across. So if growing profitability aligns with your idea of a great company, take a peek at this free list of interesting companies with strong recent earnings growth (and a low P/E).

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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.

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