Insufficient Growth At NuriFlex Co.,Ltd. (KOSDAQ:040160) Hampers Share Price

NuriFlex Co.,Ltd.'s (KOSDAQ:040160) price-to-sales (or "P/S") ratio of 0.3x may look like a pretty appealing investment opportunity when you consider close to half the companies in the Communications industry in Korea have P/S ratios greater than 0.9x. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's limited.

Check out our latest analysis for NuriFlexLtd

What Does NuriFlexLtd's Recent Performance Look Like?

For instance, NuriFlexLtd's receding revenue in recent times would have to be some food for thought. 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 NuriFlexLtd will help you shine a light on its historical performance.

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

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

Taking a look back first, the company's revenue growth last year wasn't something to get excited about as it posted a disappointing decline of 7.8%. Regardless, revenue has managed to lift by a handy 14% in aggregate from three years ago, thanks to the earlier period of growth. So we can start by confirming that the company has generally done a good job of growing revenue over that time, even though it had some hiccups along the way.

Comparing that to the industry, which is predicted to deliver 52% growth in the next 12 months, the company's momentum is weaker, based on recent medium-term annualised revenue results.

With this in consideration, it's easy to understand why NuriFlexLtd'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

It's argued the price-to-sales ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

Our examination of NuriFlexLtd confirms that the company's revenue trends over the past three-year years are a key factor in its low price-to-sales ratio, as we suspected, given they fall short of current industry expectations. Right now shareholders are accepting the low P/S as they concede future revenue probably won't provide any pleasant surprises. Unless the recent medium-term conditions improve, they will continue to form a barrier for the share price around these levels.

Don't forget that there may be other risks. For instance, we've identified 3 warning signs for NuriFlexLtd (1 is a bit unpleasant) you should be aware of.

If these risks are making you reconsider your opinion on NuriFlexLtd, explore our interactive list of high quality stocks to get an idea of what else is out there.

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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