Luokung Technology Corp. (NASDAQ:LKCO) Stock's 30% Dive Might Signal An Opportunity But It Requires Some Scrutiny

Unfortunately for some shareholders, the Luokung Technology Corp. (NASDAQ:LKCO) share price has dived 30% in the last thirty days, prolonging recent pain. For any long-term shareholders, the last month ends a year to forget by locking in a 92% share price decline.

After such a large drop in price, Luokung Technology may be sending buy signals at present with its price-to-sales (or "P/S") ratio of 0.2x, considering almost half of all companies in the Interactive Media and Services industry in the United States have P/S ratios greater than 1.5x and even P/S higher than 4x 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 reduced P/S.

Check out our latest analysis for Luokung Technology

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

For instance, Luokung Technology's receding revenue in recent times would have to be some food for thought. One possibility is that the P/S is low because investors think the company won't do enough to avoid underperforming the broader industry in the near future. However, if this doesn't eventuate then existing shareholders may be feeling optimistic about the future direction of the share price.

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

Do Revenue Forecasts Match The Low P/S Ratio?

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

Taking a look back first, the company's revenue growth last year wasn't something to get excited about as it posted a disappointing decline of 78%. Still, the latest three year period has seen an excellent 82% overall rise in revenue, in spite of its unsatisfying short-term performance. So we can start by confirming that the company has generally done a very good job of growing revenue over that time, even though it had some hiccups along the way.

This is in contrast to the rest of the industry, which is expected to grow by 13% over the next year, materially lower than the company's recent medium-term annualised growth rates.

In light of this, it's peculiar that Luokung Technology's P/S sits below the majority of other companies. Apparently some shareholders believe the recent performance has exceeded its limits and have been accepting significantly lower selling prices.

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

Luokung Technology's recently weak share price has pulled its P/S back below other Interactive Media and Services companies. Typically, we'd caution against reading too much into price-to-sales ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

Our examination of Luokung Technology 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. It appears many 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 5 warning signs for Luokung Technology you should be aware of, and 3 of them shouldn't be ignored.

It's important to make sure you look for a great company, not just the first idea you come across. So if growing profitability aligns with your idea of a great company, take a peek at this free list of interesting companies with strong recent earnings growth (and a low P/E).

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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.