Inno Instrument Inc.'s (KOSDAQ:215790) Share Price Could Signal Some Risk

Simply Wall St · 10/16 22:23

There wouldn't be many who think Inno Instrument Inc.'s (KOSDAQ:215790) price-to-sales (or "P/S") ratio of 0.4x is worth a mention when the median P/S for the Communications industry in Korea is similar at about 0.8x. Although, it's not wise to simply ignore the P/S without explanation as investors may be disregarding a distinct opportunity or a costly mistake.

See our latest analysis for Inno Instrument

ps-multiple-vs-industry
KOSDAQ:A215790 Price to Sales Ratio vs Industry October 16th 2024

How Inno Instrument Has Been Performing

For instance, Inno Instrument's receding revenue in recent times would have to be some food for thought. Perhaps investors believe the recent revenue performance is enough to keep in line with the industry, which is keeping the P/S from dropping off. 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.

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

Is There Some Revenue Growth Forecasted For Inno Instrument?

The only time you'd be comfortable seeing a P/S like Inno Instrument's is when the company's growth is tracking the industry closely.

Retrospectively, the last year delivered a frustrating 12% decrease to the company's top line. As a result, revenue from three years ago have also fallen 7.2% overall. Therefore, it's fair to say the revenue growth recently has been undesirable for the company.

Weighing that medium-term revenue trajectory against the broader industry's one-year forecast for expansion of 53% shows it's an unpleasant look.

In light of this, it's somewhat alarming that Inno Instrument's P/S sits in line with the majority of other companies. It seems most investors are ignoring the recent poor growth rate and are hoping for a turnaround in the company's business prospects. There's a good chance existing shareholders are setting themselves up for future disappointment if the P/S falls to levels more in line with the recent negative growth rates.

The Final Word

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.

The fact that Inno Instrument currently trades at a P/S on par with the rest of the industry is surprising to us since its recent revenues have been in decline over the medium-term, all while the industry is set to grow. Even though it matches the industry, we're uncomfortable with the current P/S ratio, as this dismal revenue performance is unlikely to support a more positive sentiment for long. If recent medium-term revenue trends continue, it will place shareholders' investments at risk and potential investors in danger of paying an unnecessary premium.

You always need to take note of risks, for example - Inno Instrument has 1 warning sign we think you should be aware of.

If you're unsure about the strength of Inno Instrument's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.