Investors Still Aren't Entirely Convinced By SeA Mechanics Co., Ltd's (KOSDAQ:396300) Revenues Despite 44% Price Jump

Despite an already strong run, SeA Mechanics Co., Ltd (KOSDAQ:396300) shares have been powering on, with a gain of 44% in the last thirty days. Notwithstanding the latest gain, the annual share price return of 2.4% isn't as impressive.

In spite of the firm bounce in price, there still wouldn't be many who think SeA Mechanics' price-to-sales (or "P/S") ratio of 1x is worth a mention when the median P/S in Korea's Electronic industry is similar at about 0.7x. 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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See our latest analysis for SeA Mechanics

How SeA Mechanics Has Been Performing

SeA Mechanics could be doing better as its revenue has been going backwards lately while most other companies have been seeing positive revenue growth. Perhaps the market is expecting its poor revenue performance to improve, keeping the P/S from dropping. You'd really hope so, otherwise you're paying a relatively elevated price for a company with this sort of growth profile.

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

How Is SeA Mechanics' Revenue Growth Trending?

In order to justify its P/S ratio, SeA Mechanics would need to produce growth that's similar to the industry.

Retrospectively, the last year delivered a frustrating 4.7% decrease to the company's top line. This means it has also seen a slide in revenue over the longer-term as revenue is down 14% in total over the last three years. Therefore, it's fair to say the revenue growth recently has been undesirable for the company.

Shifting to the future, estimates from the lone analyst covering the company suggest revenue should grow by 38% over the next year. That's shaping up to be materially higher than the 19% growth forecast for the broader industry.

With this information, we find it interesting that SeA Mechanics is trading at a fairly similar P/S compared to the industry. It may be that most investors aren't convinced the company can achieve future growth expectations.

What We Can Learn From SeA Mechanics' P/S?

SeA Mechanics' stock has a lot of momentum behind it lately, which has brought its P/S level with the rest of the industry. 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.

Despite enticing revenue growth figures that outpace the industry, SeA Mechanics' P/S isn't quite what we'd expect. There could be some risks that the market is pricing in, which is preventing the P/S ratio from matching the positive outlook. At least the risk of a price drop looks to be subdued, but investors seem to think future revenue could see some volatility.

We don't want to rain on the parade too much, but we did also find 4 warning signs for SeA Mechanics that you need to be mindful of.

If strong companies turning a profit tickle your fancy, then you'll want to check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).

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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.