The Market Doesn't Like What It Sees From MDS Tech Inc.'s (KOSDAQ:086960) Revenues Yet As Shares Tumble 31%

Unfortunately for some shareholders, the MDS Tech Inc. (KOSDAQ:086960) share price has dived 31% in the last thirty days, prolonging recent pain. The recent drop completes a disastrous twelve months for shareholders, who are sitting on a 50% loss during that time.

Since its price has dipped substantially, given about half the companies operating in Korea's Software industry have price-to-sales ratios (or "P/S") above 1.9x, you may consider MDS Tech as an attractive investment with its 0.6x P/S ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/S.

View our latest analysis for MDS Tech

What Does MDS Tech's Recent Performance Look Like?

MDS Tech has been doing a decent job lately as it's been growing revenue at a reasonable pace. One possibility is that the P/S ratio is low because investors think this good revenue growth might actually underperform the broader industry in the near future. Those who are bullish on MDS Tech 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 MDS Tech's earnings, revenue and cash flow.

Do Revenue Forecasts Match The Low P/S Ratio?

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

If we review the last year of revenue growth, the company posted a worthy increase of 5.5%. The latest three year period has also seen a 9.7% overall rise in revenue, aided somewhat by its short-term performance. Therefore, it's fair to say the revenue growth recently has been respectable for the company.

This is in contrast to the rest of the industry, which is expected to grow by 36% over the next year, materially higher than the company's recent medium-term annualised growth rates.

With this in consideration, it's easy to understand why MDS Tech's P/S falls short of the mark set by its industry peers. It seems most investors are expecting to see the recent limited growth rates continue into the future and are only willing to pay a reduced amount for the stock.

The Final Word

MDS Tech's P/S has taken a dip along with its share price. 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.

In line with expectations, MDS Tech maintains its low P/S on the weakness of its recent three-year growth being lower than the wider industry forecast. 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.

You should always think about risks. Case in point, we've spotted 3 warning signs for MDS Tech you should be aware of, and 1 of them makes us a bit uncomfortable.

If you're unsure about the strength of MDS Tech's 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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com