OPTRONTEC Inc.'s (KOSDAQ:082210) Shares Climb 26% But Its Business Is Yet to Catch Up

Those holding OPTRONTEC Inc. (KOSDAQ:082210) shares would be relieved that the share price has rebounded 26% in the last thirty days, but it needs to keep going to repair the recent damage it has caused to investor portfolios. Still, the 30-day jump doesn't change the fact that longer term shareholders have seen their stock decimated by the 61% share price drop in the last twelve months.

Although its price has surged higher, there still wouldn't be many who think OPTRONTEC's price-to-sales (or "P/S") ratio of 0.2x is worth a mention when the median P/S in Korea's Electronic industry is similar at about 0.7x. 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 OPTRONTEC

How OPTRONTEC Has Been Performing

OPTRONTEC certainly has been doing a good job lately as it's been growing revenue more than most other companies. Perhaps the market is expecting this level of performance to taper off, keeping the P/S from soaring. If the company manages to stay the course, then investors should be rewarded with a share price that matches its revenue figures.

If you'd like to see what analysts are forecasting going forward, you should check out our free report on OPTRONTEC.

Is There Some Revenue Growth Forecasted For OPTRONTEC?

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

If we review the last year of revenue growth, the company posted a worthy increase of 13%. Revenue has also lifted 27% in aggregate from three years ago, partly thanks to the last 12 months of growth. Accordingly, shareholders would have probably been satisfied with the medium-term rates of revenue growth.

Shifting to the future, estimates from the sole analyst covering the company suggest revenue growth is heading into negative territory, declining 0.9% over the next year. Meanwhile, the broader industry is forecast to expand by 8.5%, which paints a poor picture.

With this information, we find it concerning that OPTRONTEC is trading at a fairly similar P/S compared to the industry. It seems most investors are hoping for a turnaround in the company's business prospects, but the analyst cohort is not so confident this will happen. There's a good chance these shareholders are setting themselves up for future disappointment if the P/S falls to levels more in line with the negative growth outlook.

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

OPTRONTEC appears to be back in favour with a solid price jump bringing its P/S back in line with other companies in the industry Using the price-to-sales ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

Our check of OPTRONTEC's analyst forecasts revealed that its outlook for shrinking revenue isn't bringing down its P/S as much as we would have predicted. With this in mind, we don't feel the current P/S is justified as declining revenues are unlikely to support a more positive sentiment for long. If the poor revenue outlook tells us one thing, it's that these current price levels could be unsustainable.

Don't forget that there may be other risks. For instance, we've identified 2 warning signs for OPTRONTEC (1 is concerning) you should be aware of.

Of course, profitable companies with a history of great earnings growth are generally safer bets. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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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.