It's Down 27% But ISAAC Engineering Co.,Ltd (KOSDAQ:351330) Could Be Riskier Than It Looks

ISAAC Engineering Co.,Ltd (KOSDAQ:351330) shareholders won't be pleased to see that the share price has had a very rough month, dropping 27% and undoing the prior period's positive performance. The last month has meant the stock is now only up 2.7% during the last year.

In spite of the heavy fall in price, you could still be forgiven for feeling indifferent about ISAAC EngineeringLtd's P/S ratio of 0.8x, since the median price-to-sales (or "P/S") ratio for the IT industry in Korea is about the same. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/S.

See our latest analysis for ISAAC EngineeringLtd

What Does ISAAC EngineeringLtd's P/S Mean For Shareholders?

With revenue growth that's exceedingly strong of late, ISAAC EngineeringLtd has been doing very well. It might be that many expect the strong revenue performance to wane, which has kept the share price, and thus the P/S ratio, from rising. If that doesn't eventuate, then existing shareholders have reason to be feeling optimistic about the future direction of the share price.

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 ISAAC EngineeringLtd's earnings, revenue and cash flow.

What Are Revenue Growth Metrics Telling Us About The P/S?

In order to justify its P/S ratio, ISAAC EngineeringLtd would need to produce growth that's similar to the industry.

Retrospectively, the last year delivered an exceptional 53% gain to the company's top line. Pleasingly, revenue has also lifted 126% in aggregate from three years ago, thanks to the last 12 months of growth. So we can start by confirming that the company has done a great job of growing revenue over that time.

Comparing that recent medium-term revenue trajectory with the industry's one-year growth forecast of 7.2% shows it's noticeably more attractive.

In light of this, it's curious that ISAAC EngineeringLtd's P/S sits in line with the majority of other companies. Apparently some shareholders believe the recent performance is at its limits and have been accepting lower selling prices.

What We Can Learn From ISAAC EngineeringLtd's P/S?

With its share price dropping off a cliff, the P/S for ISAAC EngineeringLtd looks to be in line with the rest of the IT industry. 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.

To our surprise, ISAAC EngineeringLtd revealed its three-year revenue trends aren't contributing to its P/S as much as we would have predicted, given they look better than current industry expectations. It'd be fair to assume that potential risks the company faces could be the contributing factor to the lower than expected P/S. It appears some are indeed anticipating revenue instability, because the persistence of these recent medium-term conditions would normally provide a boost to the share price.

You need to take note of risks, for example - ISAAC EngineeringLtd has 3 warning signs (and 2 which are a bit concerning) we think you should know about.

If strong companies turning a profit tickle your fancy, then you'll want to check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).

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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