Slammed 27% Coincheck Group N.V. (NASDAQ:CNCK) Screens Well Here But There Might Be A Catch

To the annoyance of some shareholders, Coincheck Group N.V. (NASDAQ:CNCK) shares are down a considerable 27% in the last month, which continues a horrid run for the company. Instead of being rewarded, shareholders who have already held through the last twelve months are now sitting on a 30% share price drop.

Following the heavy fall in price, Coincheck Group may look like a strong buying opportunity at present with its price-to-sales (or "P/S") ratio of 0.4x, considering almost half of all companies in the Capital Markets industry in the United States have P/S ratios greater than 3.3x and even P/S higher than 9x aren't out of the ordinary. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly reduced P/S.

Check out our latest analysis for Coincheck Group

What Does Coincheck Group's P/S Mean For Shareholders?

Coincheck Group certainly has been doing a great job lately as it's been growing its revenue at a really rapid pace. One possibility is that the P/S ratio is low because investors think this strong revenue growth might actually underperform the broader industry in the near future. 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.

Although there are no analyst estimates available for Coincheck Group, take a look at this free data-rich visualisation to see how the company stacks up on earnings, revenue and cash flow.

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

In order to justify its P/S ratio, Coincheck Group would need to produce anemic growth that's substantially trailing the industry.

Taking a look back first, we see that the company grew revenue by an impressive 61% last year. Spectacularly, three year revenue growth has ballooned by several orders of magnitude, thanks in part to the last 12 months of revenue growth. Therefore, it's fair to say the revenue growth recently has been superb for the company.

Comparing that to the industry, which is only predicted to deliver 4.9% growth in the next 12 months, the company's momentum is stronger based on recent medium-term annualised revenue results.

With this information, we find it odd that Coincheck Group is trading at a P/S lower than the industry. Apparently some shareholders believe the recent performance has exceeded its limits and have been accepting significantly lower selling prices.

What We Can Learn From Coincheck Group's P/S?

Coincheck Group's P/S looks about as weak as its stock price lately. 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.

Our examination of Coincheck Group revealed its three-year revenue trends aren't boosting its P/S anywhere near as much as we would have predicted, given they look better than current industry expectations. When we see strong revenue with faster-than-industry growth, we assume there are some significant underlying risks to the company's ability to make money which is applying downwards pressure on the P/S ratio. At least price risks look to be very low if recent medium-term revenue trends continue, but investors seem to think future revenue could see a lot of volatility.

It is also worth noting that we have found 3 warning signs for Coincheck Group (2 are potentially serious!) that you need to take into consideration.

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.