Positive Sentiment Still Eludes Setopia Co.,Ltd. (KOSDAQ:222810) Following 35% Share Price Slump

Setopia Co.,Ltd. (KOSDAQ:222810) shareholders that were waiting for something to happen have been dealt a blow with a 35% share price drop in the last month. The drop over the last 30 days has capped off a tough year for shareholders, with the share price down 16% in that time.

Following the heavy fall in price, SetopiaLtd may be sending buy signals at present with its price-to-sales (or "P/S") ratio of 1x, considering almost half of all companies in the Software industry in Korea have P/S ratios greater than 2.3x and even P/S higher than 5x aren't out of the ordinary. However, the P/S might be low for a reason and it requires further investigation to determine if it's justified.

Check out our latest analysis for SetopiaLtd

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

Revenue has risen firmly for SetopiaLtd recently, which is pleasing to see. It might be that many expect the respectable revenue performance to degrade substantially, which has repressed the P/S. Those who are bullish on SetopiaLtd 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 SetopiaLtd's earnings, revenue and cash flow.

Do Revenue Forecasts Match The Low P/S Ratio?

SetopiaLtd's P/S ratio would be typical for a company that's only expected to deliver limited growth, and importantly, perform worse than the industry.

Retrospectively, the last year delivered a decent 10% gain to the company's revenues. While this performance is only fair, the company was still able to deliver immense revenue growth over the last three years. Accordingly, shareholders would have been over the moon with those medium-term rates of revenue growth.

Comparing that recent medium-term revenue trajectory with the industry's one-year growth forecast of 43% shows it's noticeably more attractive.

With this information, we find it odd that SetopiaLtd is trading at a P/S lower than the industry. Apparently some shareholders believe the recent performance has exceeded its limits and have been accepting significantly lower selling prices.

The Bottom Line On SetopiaLtd's P/S

The southerly movements of SetopiaLtd's shares means its P/S is now sitting at a pretty low level. Generally, our preference is to limit the use of the price-to-sales ratio to establishing what the market thinks about the overall health of a company.

We're very surprised to see SetopiaLtd currently trading on a much lower than expected P/S since its recent three-year growth is higher than the wider industry forecast. 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. While recent revenue trends over the past medium-term suggest that the risk of a price decline is low, investors appear to perceive a likelihood of revenue fluctuations in the future.

You should always think about risks. Case in point, we've spotted 3 warning signs for SetopiaLtd you should be aware of, and 1 of them doesn't sit too well with us.

It's important to make sure you look for a great company, not just the first idea you come across. So if growing profitability aligns with your idea of a great company, take a peek at this free list of interesting companies with strong recent earnings growth (and a low P/E).

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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.