What DeepMind Platform Co., Ltd.'s (KOSDAQ:223310) P/S Is Not Telling You

When you see that almost half of the companies in the Electronic industry in Korea have price-to-sales ratios (or "P/S") below 0.7x, DeepMind Platform Co., Ltd. (KOSDAQ:223310) looks to be giving off strong sell signals with its 3x P/S ratio. However, the P/S might be quite high for a reason and it requires further investigation to determine if it's justified.

AI is about to change healthcare. These 20 stocks are working on everything from early diagnostics to drug discovery. The best part - they are all under $10bn in marketcap - there is still time to get in early.

Check out our latest analysis for DeepMind Platform

What Does DeepMind Platform's Recent Performance Look Like?

The revenue growth achieved at DeepMind Platform over the last year would be more than acceptable for most companies. It might be that many expect the respectable revenue performance to beat most other companies over the coming period, which has increased investors’ willingness to pay up for the stock. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

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 DeepMind Platform's earnings, revenue and cash flow.

Do Revenue Forecasts Match The High P/S Ratio?

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

Taking a look back first, we see that the company managed to grow revenues by a handy 12% last year. This was backed up an excellent period prior to see revenue up by 30% in total over the last three years. So we can start by confirming that the company has done a great job of growing revenues over that time.

Weighing that recent medium-term revenue trajectory against the broader industry's one-year forecast for expansion of 7.8% shows it's about the same on an annualised basis.

With this information, we find it interesting that DeepMind Platform is trading at a high P/S compared to the industry. Apparently many investors in the company are more bullish than recent times would indicate and aren't willing to let go of their stock right now. Although, additional gains will be difficult to achieve as a continuation of recent revenue trends would weigh down the share price eventually.

What Does DeepMind Platform's P/S Mean For Investors?

While the price-to-sales ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of revenue expectations.

Our look into DeepMind Platform has shown that it currently trades on a higher than expected P/S since its recent three-year growth is only in line with the wider industry forecast. Right now we are uncomfortable with the high P/S as this revenue performance isn't likely to support such positive sentiment for long. Unless the recent medium-term conditions improve, it's challenging to accept these prices as being reasonable.

Plus, you should also learn about these 4 warning signs we've spotted with DeepMind Platform (including 3 which are potentially serious).

If these risks are making you reconsider your opinion on DeepMind Platform, explore our interactive list of high quality stocks to get an idea of what else is out there.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.