Nextchip Co., Ltd. (KOSDAQ:396270) Stocks Pounded By 34% But Not Lagging Industry On Growth Or Pricing

Unfortunately for some shareholders, the Nextchip Co., Ltd. (KOSDAQ:396270) share price has dived 34% in the last thirty days, prolonging recent pain. For any long-term shareholders, the last month ends a year to forget by locking in a 61% share price decline.

Even after such a large drop in price, you could still be forgiven for feeling indifferent about Nextchip's P/S ratio of 1.7x, since the median price-to-sales (or "P/S") ratio for the Semiconductor industry in Korea is also close to 1.5x. While this might not raise any eyebrows, if the P/S ratio is not justified investors could be missing out on a potential opportunity or ignoring looming disappointment.

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See our latest analysis for Nextchip

How Has Nextchip Performed Recently?

Recent times have been quite advantageous for Nextchip as its revenue has been rising very briskly. Perhaps the market is expecting future revenue performance to taper off, which has kept the P/S from rising. Those who are bullish on Nextchip 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 Nextchip will help you shine a light on its historical performance.

Do Revenue Forecasts Match The P/S Ratio?

In order to justify its P/S ratio, Nextchip would need to produce growth that's similar to the industry.

Taking a look back first, we see that the company grew revenue by an impressive 71% last year. The strong recent performance means it was also able to grow revenue by 96% in total over the last three years. Therefore, it's fair to say the revenue growth recently has been superb for the company.

It's interesting to note that the rest of the industry is similarly expected to grow by 25% over the next year, which is fairly even with the company's recent medium-term annualised growth rates.

With this in consideration, it's clear to see why Nextchip's P/S matches up closely to its industry peers. Apparently shareholders are comfortable to simply hold on assuming the company will continue keeping a low profile.

The Key Takeaway

With its share price dropping off a cliff, the P/S for Nextchip looks to be in line with the rest of the Semiconductor 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.

As we've seen, Nextchip's three-year revenue trends seem to be contributing to its P/S, given they look similar to current industry expectations. Right now shareholders are comfortable with the P/S as they are quite confident future revenue won't throw up any surprises. Unless the recent medium-term conditions change, they will continue to support the share price at these levels.

Plus, you should also learn about these 4 warning signs we've spotted with Nextchip (including 3 which are potentially serious).

If strong companies turning a profit tickle your fancy, then you'll want to check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).

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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.