Inno Instrument Inc.'s (KOSDAQ:215790) Popularity With Investors Under Threat As Stock Sinks 26%

Inno Instrument Inc. (KOSDAQ:215790) shares have retraced a considerable 26% in the last month, reversing a fair amount of their solid recent performance. Looking back over the past twelve months the stock has been a solid performer regardless, with a gain of 23%.

Even after such a large drop in price, there still wouldn't be many who think Inno Instrument's price-to-sales (or "P/S") ratio of 0.5x is worth a mention when the median P/S in Korea's Communications industry is similar at about 1x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/S.

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Check out our latest analysis for Inno Instrument

How Has Inno Instrument Performed Recently?

Revenue has risen at a steady rate over the last year for Inno Instrument, which is generally not a bad outcome. Perhaps the expectation moving forward is that the revenue growth will track in line with the wider industry for the near term, which has kept the P/S subdued. Those who are bullish on Inno Instrument 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 Inno Instrument, take a look at this free data-rich visualisation to see how the company stacks up on earnings, revenue and cash flow.

How Is Inno Instrument's Revenue Growth Trending?

Inno Instrument's P/S ratio would be typical for a company that's only expected to deliver moderate growth, and importantly, perform in line with the industry.

If we review the last year of revenue growth, the company posted a worthy increase of 3.2%. Ultimately though, it couldn't turn around the poor performance of the prior period, with revenue shrinking 5.5% in total over the last three years. Accordingly, shareholders would have felt downbeat about the medium-term rates of revenue growth.

In contrast to the company, the rest of the industry is expected to grow by 49% over the next year, which really puts the company's recent medium-term revenue decline into perspective.

With this information, we find it concerning that Inno Instrument is trading at a fairly similar P/S compared to the industry. 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 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.

The Key Takeaway

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

We find it unexpected that Inno Instrument trades at a P/S ratio that is comparable to the rest of the industry, despite experiencing declining revenues during the medium-term, while the industry as a whole is expected to grow. When we see revenue heading backwards in the context of growing industry forecasts, it'd make sense to expect a possible share price decline on the horizon, sending the moderate P/S lower. Unless the recent medium-term conditions improve markedly, investors will have a hard time accepting the share price as fair value.

Before you settle on your opinion, we've discovered 3 warning signs for Inno Instrument (2 are potentially serious!) that you should be aware of.

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.