Some Confidence Is Lacking In Mirae Corporation (KRX:025560) As Shares Slide 31%

The Mirae Corporation (KRX:025560) share price has fared very poorly over the last month, falling by a substantial 31%. The recent drop completes a disastrous twelve months for shareholders, who are sitting on a 80% loss during that time.

Although its price has dipped substantially, it's still not a stretch to say that Mirae's price-to-sales (or "P/S") ratio of 1.9x right now seems quite "middle-of-the-road" compared to the Semiconductor industry in Korea, where the median P/S ratio is around 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.

View our latest analysis for Mirae

What Does Mirae's P/S Mean For Shareholders?

As an illustration, revenue has deteriorated at Mirae over the last year, which is not ideal at all. It might be that many expect the company to put the disappointing revenue performance behind them over the coming period, which has kept the P/S from falling. If you like the company, you'd at least be hoping this is the case so that you could potentially pick up some stock while it's not quite in favour.

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

How Is Mirae's Revenue Growth Trending?

Mirae's P/S ratio would be typical for a company that's only expected to deliver moderate growth, and importantly, perform in line with the industry.

Taking a look back first, the company's revenue growth last year wasn't something to get excited about as it posted a disappointing decline of 47%. The last three years don't look nice either as the company has shrunk revenue by 59% in aggregate. Accordingly, shareholders would have felt downbeat about the medium-term rates of revenue growth.

Weighing that medium-term revenue trajectory against the broader industry's one-year forecast for expansion of 69% shows it's an unpleasant look.

With this in mind, we find it worrying that Mirae's P/S exceeds that of its industry peers. Apparently many investors in the company are way less bearish than recent times would indicate and aren't willing to let go of their stock right now. Only the boldest would assume these prices are sustainable as a continuation of recent revenue trends is likely to weigh on the share price eventually.

The Final Word

With its share price dropping off a cliff, the P/S for Mirae 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.

The fact that Mirae currently trades at a P/S on par with the rest of the industry is surprising to us since its recent revenues have been in decline over the medium-term, all while the industry is set to grow. When we see revenue heading backwards in the context of growing industry forecasts, it'd make sense to expect a possible share price decline on the horizon, sending the moderate P/S lower. If recent medium-term revenue trends continue, it will place shareholders' investments at risk and potential investors in danger of paying an unnecessary premium.

Having said that, be aware Mirae is showing 4 warning signs in our investment analysis, and 1 of those can't be ignored.

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.