Globetronics Technology Bhd. (KLSE:GTRONIC) May Have Run Too Fast Too Soon With Recent 27% Price Plummet

The Globetronics Technology Bhd. (KLSE:GTRONIC) share price has fared very poorly over the last month, falling by a substantial 27%. The recent drop completes a disastrous twelve months for shareholders, who are sitting on a 71% loss during that time.

Even after such a large drop in price, you could still be forgiven for feeling indifferent about Globetronics Technology Bhd's P/S ratio of 2.2x, since the median price-to-sales (or "P/S") ratio for the Semiconductor industry in Malaysia is also close to 2.6x. 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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Check out our latest analysis for Globetronics Technology Bhd

What Does Globetronics Technology Bhd's P/S Mean For Shareholders?

For example, consider that Globetronics Technology Bhd's 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 Globetronics Technology Bhd's earnings, revenue and cash flow.

Is There Some Revenue Growth Forecasted For Globetronics Technology Bhd?

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

In reviewing the last year of financials, we were disheartened to see the company's revenues fell to the tune of 18%. This means it has also seen a slide in revenue over the longer-term as revenue is down 45% in total over the last three years. So unfortunately, we have to acknowledge that the company has not done a great job of growing revenue over that time.

Weighing that medium-term revenue trajectory against the broader industry's one-year forecast for expansion of 7.9% shows it's an unpleasant look.

In light of this, it's somewhat alarming that Globetronics Technology Bhd's P/S sits in line with the majority of other companies. Apparently many investors in the company are way less bearish than recent times would indicate and aren't willing to let go of their stock right now. Only the boldest would assume these prices are sustainable as a continuation of recent revenue trends is likely to weigh on the share price eventually.

What Does Globetronics Technology Bhd's P/S Mean For Investors?

With its share price dropping off a cliff, the P/S for Globetronics Technology Bhd looks to be in line with the rest of the Semiconductor industry. 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 at Globetronics Technology Bhd revealed its shrinking revenues over the medium-term haven't impacted the P/S as much as we anticipated, given the industry is set 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.

Don't forget that there may be other risks. For instance, we've identified 4 warning signs for Globetronics Technology Bhd (1 makes us a bit uncomfortable) you should be aware 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.