Chips&Media, Inc.'s (KOSDAQ:094360) Shareholders Might Be Looking For Exit

When you see that almost half of the companies in the Communications industry in Korea have price-to-sales ratios (or "P/S") below 0.8x, Chips&Media, Inc. (KOSDAQ:094360) looks to be giving off strong sell signals with its 9.7x P/S ratio. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's so lofty.

See our latest analysis for Chips&Media

What Does Chips&Media's P/S Mean For Shareholders?

Chips&Media hasn't been tracking well recently as its declining revenue compares poorly to other companies, which have seen some growth in their revenues on average. Perhaps the market is expecting the poor revenue to reverse, justifying it's current high P/S.. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

Keen to find out how analysts think Chips&Media's future stacks up against the industry? In that case, our free report is a great place to start.

How Is Chips&Media's Revenue Growth Trending?

There's an inherent assumption that a company should far outperform the industry for P/S ratios like Chips&Media's to be considered reasonable.

Retrospectively, the last year delivered a frustrating 3.4% decrease to the company's top line. Still, the latest three year period has seen an excellent 56% overall rise in revenue, in spite of its unsatisfying short-term performance. So we can start by confirming that the company has generally done a very good job of growing revenue over that time, even though it had some hiccups along the way.

Shifting to the future, estimates from the four analysts covering the company suggest revenue should grow by 21% over the next year. Meanwhile, the rest of the industry is forecast to expand by 52%, which is noticeably more attractive.

With this in consideration, we believe it doesn't make sense that Chips&Media's P/S is outpacing its industry peers. 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 growth outlook.

What Does Chips&Media's P/S Mean For Investors?

Typically, we'd caution against reading too much into price-to-sales ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

We've concluded that Chips&Media currently trades on a much higher than expected P/S since its forecast growth is lower than the wider industry. Right now we aren't comfortable with the high P/S as the predicted future revenues aren't likely to support such positive sentiment for long. Unless these conditions improve markedly, it's very challenging to accept these prices as being reasonable.

And what about other risks? Every company has them, and we've spotted 1 warning sign for Chips&Media you should know about.

It's important to make sure you look for a great company, not just the first idea you come across. So if growing profitability aligns with your idea of a great company, take a peek at this free list of interesting companies with strong recent earnings growth (and a low P/E).

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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.