nTels Co., Ltd.'s (KOSDAQ:069410) Shares Bounce 34% But Its Business Still Trails The Industry

nTels Co., Ltd. (KOSDAQ:069410) shares have had a really impressive month, gaining 34% after a shaky period beforehand. Not all shareholders will be feeling jubilant, since the share price is still down a very disappointing 26% in the last twelve months.

In spite of the firm bounce in price, given about half the companies operating in Korea's Software industry have price-to-sales ratios (or "P/S") above 1.6x, you may still consider nTels as an attractive investment with its 0.9x P/S ratio. However, the P/S might be low for a reason and it requires further investigation to determine if it's justified.

See our latest analysis for nTels

How nTels Has Been Performing

For instance, nTels' receding revenue in recent times would have to be some food for thought. One possibility is that the P/S is low because investors think the company won't do enough to avoid underperforming the broader industry in the near future. If you like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's out of favour.

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

How Is nTels' Revenue Growth Trending?

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

Retrospectively, the last year delivered a frustrating 4.1% decrease to the company's top line. This means it has also seen a slide in revenue over the longer-term as revenue is down 18% in total over the last three years. So unfortunately, we have to acknowledge that the company has not done a great job of growing revenue over that time.

Weighing that medium-term revenue trajectory against the broader industry's one-year forecast for expansion of 19% shows it's an unpleasant look.

In light of this, it's understandable that nTels' P/S would sit below the majority of other companies. Nonetheless, there's no guarantee the P/S has reached a floor yet with revenue going in reverse. There's potential for the P/S to fall to even lower levels if the company doesn't improve its top-line growth.

The Key Takeaway

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

Our examination of nTels confirms that the company's shrinking revenue over the past medium-term is a key factor in its low price-to-sales ratio, given the industry is projected to grow. Right now shareholders are accepting the low P/S as they concede future revenue probably won't provide any pleasant surprises either. Unless the recent medium-term conditions improve, they will continue to form a barrier for the share price around these levels.

There are also other vital risk factors to consider and we've discovered 2 warning signs for nTels (1 can't be ignored!) that you should be aware of before investing here.

If you're unsure about the strength of nTels' business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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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.