OBZEN Inc.'s (KOSDAQ:417860) 25% Share Price Plunge Could Signal Some Risk

The OBZEN Inc. (KOSDAQ:417860) share price has softened a substantial 25% over the previous 30 days, handing back much of the gains the stock has made lately. Looking back over the past twelve months the stock has been a solid performer regardless, with a gain of 21%.

In spite of the heavy fall in price, you could still be forgiven for thinking OBZEN is a stock not worth researching with a price-to-sales ratios (or "P/S") of 2.9x, considering almost half the companies in Korea's Software industry have P/S ratios below 2x. However, the P/S might be high for a reason and it requires further investigation to determine if it's justified.

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View our latest analysis for OBZEN

How Has OBZEN Performed Recently?

OBZEN certainly has been doing a great job lately as it's been growing its revenue at a really rapid pace. Perhaps the market is expecting future revenue performance to outperform the wider market, which has seemingly got people interested in the stock. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

Want the full picture on earnings, revenue and cash flow for the company? Then our free report on OBZEN will help you shine a light on its historical performance.

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

The only time you'd be truly comfortable seeing a P/S as high as OBZEN's is when the company's growth is on track to outshine the industry.

Retrospectively, the last year delivered an exceptional 49% gain to the company's top line. Still, revenue has fallen 20% in total from three years ago, which is quite disappointing. Therefore, it's fair to say the revenue growth recently has been undesirable for the company.

Comparing that to the industry, which is predicted to deliver 15% growth in the next 12 months, the company's downward momentum based on recent medium-term revenue results is a sobering picture.

With this in mind, we find it worrying that OBZEN's P/S exceeds that of its industry peers. It seems most investors are ignoring the recent poor growth rate and are hoping for a turnaround in the company's business prospects. Only the boldest would assume these prices are sustainable as a continuation of recent revenue trends is likely to weigh heavily on the share price eventually.

What We Can Learn From OBZEN's P/S?

OBZEN's P/S remain high even after its stock plunged. 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've established that OBZEN currently trades on a much higher than expected P/S since its recent revenues have been in decline over the medium-term. With a revenue decline on investors' minds, the likelihood of a souring sentiment is quite high which could send the P/S back in line with what we'd expect. Unless the the circumstances surrounding the recent medium-term improve, it wouldn't be wrong to expect a a difficult period ahead for the company's shareholders.

Before you take the next step, you should know about the 3 warning signs for OBZEN (2 make us uncomfortable!) that we have uncovered.

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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.