Some Confidence Is Lacking In EM-Tech.CO., LTD. (KOSDAQ:091120) As Shares Slide 25%

The EM-Tech.CO., LTD. (KOSDAQ:091120) share price has fared very poorly over the last month, falling by a substantial 25%. For any long-term shareholders, the last month ends a year to forget by locking in a 54% share price decline.

In spite of the heavy fall in price, given close to half the companies operating in Korea's Electronic industry have price-to-sales ratios (or "P/S") below 0.7x, you may still consider EM-Tech.CO as a stock to potentially avoid with its 1.7x P/S ratio. However, the P/S might be high for a reason and it requires further investigation to determine if it's justified.

See our latest analysis for EM-Tech.CO

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

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.

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 EM-Tech.CO's 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.

In reviewing the last year of financials, we were disheartened to see the company's revenues fell to the tune of 28%. The last three years don't look nice either as the company has shrunk revenue by 40% in aggregate. 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 12% 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 EM-Tech.CO's P/S exceeds that of its industry peers. Apparently many investors in the company are way more bullish than recent times would indicate and aren't willing to let go of their stock at any price. 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.

The Bottom Line On EM-Tech.CO's P/S

Despite the recent share price weakness, EM-Tech.CO's P/S remains higher than most other companies in the industry. 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.

We've established that EM-Tech.CO currently trades on a much higher than expected P/S since its recent revenues have been in decline over the medium-term. Right now we aren't comfortable with the high P/S as this revenue performance is highly unlikely to support such positive sentiment for long. 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.

Plus, you should also learn about these 2 warning signs we've spotted with EM-Tech.CO.

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.