Little Excitement Around TOBESOFT Co., Ltd.'s (KOSDAQ:079970) Revenues

You may think that with a price-to-sales (or "P/S") ratio of 0.7x TOBESOFT Co., Ltd. (KOSDAQ:079970) is a stock worth checking out, seeing as almost half of all the Software companies in Korea have P/S ratios greater than 2.5x and even P/S higher than 5x aren't out of the ordinary. 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 TOBESOFT

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

The revenue growth achieved at TOBESOFT over the last year would be more than acceptable for most companies. Perhaps the market is expecting this acceptable revenue performance to take a dive, which has kept the P/S suppressed. Those who are bullish on TOBESOFT will be hoping that this isn't the case, so that they can pick up the stock at a lower valuation.

We don't have analyst forecasts, but you can see how recent trends are setting up the company for the future by checking out our free report on TOBESOFT's earnings, revenue and cash flow.

Is There Any Revenue Growth Forecasted For TOBESOFT?

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

Retrospectively, the last year delivered an exceptional 20% gain to the company's top line. As a result, it also grew revenue by 28% in total over the last three years. Accordingly, shareholders would have probably been satisfied with the medium-term rates of revenue growth.

This is in contrast to the rest of the industry, which is expected to grow by 43% over the next year, materially higher than the company's recent medium-term annualised growth rates.

With this information, we can see why TOBESOFT is trading at a P/S lower than the industry. Apparently many shareholders weren't comfortable holding on to something they believe will continue to trail the wider industry.

The Bottom Line On TOBESOFT's P/S

While the price-to-sales ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of revenue expectations.

As we suspected, our examination of TOBESOFT revealed its three-year revenue trends are contributing to its low P/S, given they look worse than current industry expectations. At this stage investors feel the potential for an improvement in revenue isn't great enough to justify a higher P/S ratio. Unless the recent medium-term conditions improve, they will continue to form a barrier for the share price around these levels.

You always need to take note of risks, for example - TOBESOFT has 2 warning signs we think you should be aware of.

If companies with solid past earnings growth is up your alley, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

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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.