EM-Tech.CO., LTD.'s (KOSDAQ:091120) 25% Price Boost Is Out Of Tune With Revenues

EM-Tech.CO., LTD. (KOSDAQ:091120) shareholders would be excited to see that the share price has had a great month, posting a 25% gain and recovering from prior weakness. Unfortunately, the gains of the last month did little to right the losses of the last year with the stock still down 27% over that time.

Following the firm bounce in price, you could be forgiven for thinking EM-Tech.CO is a stock not worth researching with a price-to-sales ratios (or "P/S") of 2.3x, considering almost half the companies in Korea's Electronic industry have P/S ratios below 0.7x. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the elevated P/S.

See our latest analysis for EM-Tech.CO

How EM-Tech.CO Has Been Performing

For instance, EM-Tech.CO's receding revenue in recent times would have to be some food for thought. Perhaps the market believes the company can do enough to outperform the rest of the industry in the near future, which is keeping the P/S ratio high. However, if this isn't the case, investors might get caught out paying too much for the stock.

Although there are no analyst estimates available for EM-Tech.CO, take a look at this free data-rich visualisation to see how the company stacks up on earnings, revenue and cash flow.

Is There Enough Revenue Growth Forecasted For EM-Tech.CO?

There's an inherent assumption that a company should outperform the industry for P/S ratios like EM-Tech.CO'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 24%. As a result, revenue from three years ago have also fallen 46% overall. Therefore, it's fair to say the revenue growth recently has been undesirable for the company.

Weighing that medium-term revenue trajectory against the broader industry's one-year forecast for expansion of 9.8% shows it's an unpleasant look.

In light of this, it's alarming that EM-Tech.CO's P/S sits above the majority of other companies. It seems most investors are ignoring the recent poor growth rate and are hoping for a turnaround in the company's business prospects. There's a very good chance existing shareholders are setting themselves up for future disappointment if the P/S falls to levels more in line with the recent negative growth rates.

What Does EM-Tech.CO's P/S Mean For Investors?

EM-Tech.CO's P/S is on the rise since its shares have risen strongly. We'd say the price-to-sales ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

Our examination of EM-Tech.CO revealed its shrinking revenue over the medium-term isn't resulting in a P/S as low as we expected, given the industry is set to grow. 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.

And what about other risks? Every company has them, and we've spotted 2 warning signs for EM-Tech.CO (of which 1 shouldn't be ignored!) you should know about.

If these risks are making you reconsider your opinion on EM-Tech.CO, 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.