Risks Still Elevated At These Prices As FURONTEER Inc. (KOSDAQ:370090) Shares Dive 27%

FURONTEER Inc. (KOSDAQ:370090) shareholders won't be pleased to see that the share price has had a very rough month, dropping 27% and undoing the prior period's positive performance. Instead of being rewarded, shareholders who have already held through the last twelve months are now sitting on a 24% share price drop.

In spite of the heavy fall in price, you could still be forgiven for thinking FURONTEER is a stock to steer clear of with a price-to-sales ratios (or "P/S") of 5.9x, considering almost half the companies in Korea's Electronic industry have P/S ratios below 0.7x. 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 FURONTEER

How FURONTEER Has Been Performing

FURONTEER could be doing better as its revenue has been going backwards lately while most other companies have been seeing positive revenue growth. It might be that many expect the dour revenue performance to recover substantially, which has kept the P/S from collapsing. However, if this isn't the case, investors might get caught out paying too much for the stock.

Want the full picture on analyst estimates for the company? Then our free report on FURONTEER will help you uncover what's on the horizon.

What Are Revenue Growth Metrics Telling Us About The High P/S?

The only time you'd be truly comfortable seeing a P/S as steep as FURONTEER's is when the company's growth is on track to outshine the industry decidedly.

In reviewing the last year of financials, we were disheartened to see the company's revenues fell to the tune of 45%. However, a few very strong years before that means that it was still able to grow revenue by an impressive 50% in total over the last three years. 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.

Looking ahead now, revenue is anticipated to climb by 3.0% during the coming year according to the two analysts following the company. That's shaping up to be materially lower than the 8.3% growth forecast for the broader industry.

In light of this, it's alarming that FURONTEER's P/S sits above the majority of other companies. Apparently many investors in the company are way more bullish than analysts indicate and aren't willing to let go of their stock at any price. 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 FURONTEER's P/S Mean For Investors?

FURONTEER's shares may have suffered, but its P/S remains high. Generally, our preference is to limit the use of the price-to-sales ratio to establishing what the market thinks about the overall health of a company.

It comes as a surprise to see FURONTEER trade at such a high P/S given the revenue forecasts look less than stellar. When we see a weak revenue outlook, we suspect the share price faces a much greater risk of declining, bringing back down the P/S figures. At these price levels, investors should remain cautious, particularly if things don't improve.

We don't want to rain on the parade too much, but we did also find 1 warning sign for FURONTEER that you need to be mindful of.

If companies with solid past earnings growth is up your alley, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

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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.