The Market Doesn't Like What It Sees From TOBESOFT Co., Ltd.'s (KOSDAQ:079970) Revenues Yet As Shares Tumble 83%

The TOBESOFT Co., Ltd. (KOSDAQ:079970) share price has fared very poorly over the last month, falling by a substantial 83%. For any long-term shareholders, the last month ends a year to forget by locking in a 93% share price decline.

Since its price has dipped substantially, given close to half the companies in Korea's Software industry have price-to-sales ratios (or "P/S") above 2.3x, you may consider TOBESOFT as a highly attractive investment with its 0.1x P/S ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly reduced P/S.

See our latest analysis for TOBESOFT

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

We'd have to say that with no tangible growth over the last year, TOBESOFT's revenue has been unimpressive. One possibility is that the P/S is low because investors think this benign revenue growth rate will likely underperform the broader industry in the near future. If not, then existing shareholders may be feeling optimistic about the future direction of the share price.

Although there are no analyst estimates available for TOBESOFT, take a look at this free data-rich visualisation to see how the company stacks up on earnings, revenue and cash flow.

How Is TOBESOFT's Revenue Growth Trending?

TOBESOFT's P/S ratio would be typical for a company that's expected to deliver very poor growth or even falling revenue, and importantly, perform much worse than the industry.

If we review the last year of revenue, the company posted a result that saw barely any deviation from a year ago. Still, the latest three year period was better as it's delivered a decent 11% overall rise in revenue. Accordingly, shareholders probably wouldn't have been overly satisfied with the unstable medium-term growth rates.

Comparing the recent medium-term revenue trends against the industry's one-year growth forecast of 46% shows it's noticeably less attractive.

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.

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

TOBESOFT's P/S looks about as weak as its stock price lately. Typically, we'd caution against reading too much into price-to-sales ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

Our examination of TOBESOFT confirms that the company's revenue trends over the past three-year years are a key factor in its low price-to-sales ratio, as we suspected, given they fall short of current industry expectations. 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.

It is also worth noting that we have found 3 warning signs for TOBESOFT (2 are potentially serious!) that you need to take into consideration.

If these risks are making you reconsider your opinion on TOBESOFT, explore our interactive list of high quality stocks to get an idea of what else is out there.

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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.