Investors Give WiTS Co., Ltd. (KOSDAQ:459100) Shares A 27% Hiding

Unfortunately for some shareholders, the WiTS Co., Ltd. (KOSDAQ:459100) share price has dived 27% in the last thirty days, prolonging recent pain. To make matters worse, the recent drop has wiped out a year's worth of gains with the share price now back where it started a year ago.

Although its price has dipped substantially, you could still be forgiven for feeling indifferent about WiTS' P/S ratio of 0.9x, since the median price-to-sales (or "P/S") ratio for the Electronic industry in Korea is also close to 0.6x. While this might not raise any eyebrows, if the P/S ratio is not justified investors could be missing out on a potential opportunity or ignoring looming disappointment.

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View our latest analysis for WiTS

What Does WiTS' Recent Performance Look Like?

For example, consider that WiTS' financial performance has been poor lately as its revenue has been in decline. One possibility is that the P/S is moderate because investors think the company might still do enough to be in line with the broader industry in the near future. If you like the company, you'd at least be hoping this is the case so that you could potentially pick up some stock while it's not quite in favour.

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 WiTS' earnings, revenue and cash flow.

How Is WiTS' Revenue Growth Trending?

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

Retrospectively, the last year delivered a frustrating 8.8% decrease to the company's top line. Still, the latest three year period has seen an excellent 71% overall rise in revenue, in spite of its unsatisfying short-term performance. Although it's been a bumpy ride, it's still fair to say the revenue growth recently has been more than adequate for the company.

This is in contrast to the rest of the industry, which is expected to grow by 8.7% over the next year, materially lower than the company's recent medium-term annualised growth rates.

With this information, we find it interesting that WiTS is trading at a fairly similar P/S compared to the industry. Apparently some shareholders believe the recent performance is at its limits and have been accepting lower selling prices.

The Key Takeaway

WiTS' plummeting stock price has brought its P/S back to a similar region as the rest of the industry. It's argued the price-to-sales ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

We've established that WiTS currently trades on a lower than expected P/S since its recent three-year growth is higher than the wider industry forecast. It'd be fair to assume that potential risks the company faces could be the contributing factor to the lower than expected P/S. It appears some are indeed anticipating revenue instability, because the persistence of these recent medium-term conditions would normally provide a boost to the share price.

You should always think about risks. Case in point, we've spotted 3 warning signs for WiTS you should be aware of, and 1 of them is potentially serious.

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

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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.