NextEye Co., Ltd. (KOSDAQ:137940) Might Not Be As Mispriced As It Looks After Plunging 26%

NextEye Co., Ltd. (KOSDAQ:137940) shareholders that were waiting for something to happen have been dealt a blow with a 26% share price drop in the last month. For any long-term shareholders, the last month ends a year to forget by locking in a 55% share price decline.

In spite of the heavy fall in price, there still wouldn't be many who think NextEye's price-to-sales (or "P/S") ratio of 0.5x is worth a mention when the median P/S in Korea's Electronic industry is similar at about 0.6x. Although, it's not wise to simply ignore the P/S without explanation as investors may be disregarding a distinct opportunity or a costly mistake.

View our latest analysis for NextEye

What Does NextEye's Recent Performance Look Like?

NextEye certainly has been doing a great job lately as it's been growing its revenue at a really rapid pace. Perhaps the market is expecting future revenue performance to taper off, which has kept the P/S from rising. Those who are bullish on NextEye will be hoping that this isn't the case, so that they can pick up the stock at a lower valuation.

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

Do Revenue Forecasts Match The P/S Ratio?

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

Taking a look back first, we see that the company grew revenue by an impressive 100% last year. The latest three year period has also seen an excellent 120% overall rise in revenue, aided by its short-term performance. So we can start by confirming that the company has done a great job of growing revenue over that time.

Comparing that to the industry, which is only predicted to deliver 9.3% growth in the next 12 months, the company's momentum is stronger based on recent medium-term annualised revenue results.

In light of this, it's curious that NextEye's P/S sits in line with the majority of other companies. It may be that most investors are not convinced the company can maintain its recent growth rates.

The Bottom Line On NextEye's P/S

Following NextEye's share price tumble, its P/S is just clinging on to the industry median P/S. 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.

To our surprise, NextEye revealed its three-year revenue trends aren't contributing to its P/S as much as we would have predicted, given they look better than current industry expectations. There could be some unobserved threats to revenue preventing the P/S ratio from matching this positive performance. While recent revenue trends over the past medium-term suggest that the risk of a price decline is low, investors appear to see the likelihood of revenue fluctuations in the future.

You should always think about risks. Case in point, we've spotted 2 warning signs for NextEye you should be aware of, and 1 of them is concerning.

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.