Revenues Working Against Ennoconn Corporation's (TWSE:6414) Share Price

When you see that almost half of the companies in the Tech industry in Taiwan have price-to-sales ratios (or "P/S") above 1.7x, Ennoconn Corporation (TWSE:6414) looks to be giving off some buy signals with its 0.4x P/S ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/S.

See our latest analysis for Ennoconn

What Does Ennoconn's Recent Performance Look Like?

With its revenue growth in positive territory compared to the declining revenue of most other companies, Ennoconn has been doing quite well of late. It might be that many expect the strong revenue performance to degrade substantially, possibly more than the industry, which has repressed the P/S. If you like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's out of favour.

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

How Is Ennoconn's Revenue Growth Trending?

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

Taking a look back first, we see that the company grew revenue by an impressive 28% last year. The latest three year period has also seen an excellent 47% overall rise in revenue, aided by its short-term performance. Accordingly, shareholders would have definitely welcomed those medium-term rates of revenue growth.

Turning to the outlook, the next year should generate growth of 6.3% as estimated by the seven analysts watching the company. That's shaping up to be materially lower than the 22% growth forecast for the broader industry.

In light of this, it's understandable that Ennoconn's P/S sits below the majority of other companies. It seems most investors are expecting to see limited future growth and are only willing to pay a reduced amount for the stock.

The Bottom Line On Ennoconn's P/S

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 Ennoconn maintains its low P/S on the weakness of its forecast growth being lower than the wider industry, as expected. At this stage investors feel the potential for an improvement in revenue isn't great enough to justify a higher P/S ratio. Unless these conditions improve, they will continue to form a barrier for the share price around these levels.

Having said that, be aware Ennoconn is showing 2 warning signs in our investment analysis, you should know about.

If these risks are making you reconsider your opinion on Ennoconn, 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.