SGA Solutions Co.,Ltd. (KOSDAQ:184230) Might Not Be As Mispriced As It Looks After Plunging 25%

Explore SGA SolutionsLtd's Fair Values from the Community and select yours

SGA Solutions Co.,Ltd. (KOSDAQ:184230) shares have retraced a considerable 25% in the last month, reversing a fair amount of their solid recent performance. Longer-term, the stock has been solid despite a difficult 30 days, gaining 22% in the last year.

After such a large drop in price, considering around half the companies operating in Korea's Software industry have price-to-sales ratios (or "P/S") above 2.1x, you may consider SGA SolutionsLtd as an solid investment opportunity with its 1.2x P/S ratio. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's limited.

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View our latest analysis for SGA SolutionsLtd

What Does SGA SolutionsLtd's P/S Mean For Shareholders?

As an illustration, revenue has deteriorated at SGA SolutionsLtd over the last year, which is not ideal at all. 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 SGA SolutionsLtd will help you shine a light on its historical performance.

Is There Any Revenue Growth Forecasted For SGA SolutionsLtd?

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

Retrospectively, the last year delivered a frustrating 6.2% decrease to the company's top line. Still, the latest three year period has seen an excellent 95% overall rise in revenue, in spite of its unsatisfying short-term performance. Accordingly, while they would have preferred to keep the run going, shareholders would definitely welcome the medium-term rates of revenue growth.

This is in contrast to the rest of the industry, which is expected to grow by 14% over the next year, materially lower than the company's recent medium-term annualised growth rates.

With this information, we find it odd that SGA SolutionsLtd is trading at a P/S lower than the industry. It looks like most investors are not convinced the company can maintain its recent growth rates.

The Final Word

SGA SolutionsLtd's P/S has taken a dip along with its share price. 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 SGA SolutionsLtd revealed its three-year revenue trends aren't boosting its P/S anywhere near as much as we would have predicted, given they look better than current industry expectations. When we see robust revenue growth that outpaces the industry, we presume that there are notable underlying risks to the company's future performance, which is exerting downward pressure on the P/S ratio. At least price risks look to be very low if recent medium-term revenue trends continue, but investors seem to think future revenue could see a lot of volatility.

There are also other vital risk factors to consider before investing and we've discovered 3 warning signs for SGA SolutionsLtd that 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.