Neo Marketing Inc. (TSE:4196) Stocks Pounded By 27% But Not Lagging Industry On Growth Or Pricing

Simply Wall St · 10/16 23:22

Neo Marketing Inc. (TSE:4196) shareholders won't be pleased to see that the share price has had a very rough month, dropping 27% and undoing the prior period's positive performance. Instead of being rewarded, shareholders who have already held through the last twelve months are now sitting on a 23% share price drop.

In spite of the heavy fall in price, you could still be forgiven for feeling indifferent about Neo Marketing's P/S ratio of 1.1x, since the median price-to-sales (or "P/S") ratio for the Media industry in Japan is also close to 0.7x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/S.

View our latest analysis for Neo Marketing

ps-multiple-vs-industry
TSE:4196 Price to Sales Ratio vs Industry October 16th 2024

What Does Neo Marketing's P/S Mean For Shareholders?

As an illustration, revenue has deteriorated at Neo Marketing over the last year, which is not ideal at all. 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 not, then existing shareholders may be a little nervous about the viability of the share price.

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

How Is Neo Marketing's Revenue Growth Trending?

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

In reviewing the last year of financials, we were disheartened to see the company's revenues fell to the tune of 4.3%. This has soured the latest three-year period, which nevertheless managed to deliver a decent 19% overall rise in revenue. So we can start by confirming that the company has generally done a good job of growing revenue over that time, even though it had some hiccups along the way.

Comparing that to the industry, which is predicted to deliver 4.4% growth in the next 12 months, the company's momentum is pretty similar based on recent medium-term annualised revenue results.

With this in consideration, it's clear to see why Neo Marketing's P/S matches up closely to its industry peers. Apparently shareholders are comfortable to simply hold on assuming the company will continue keeping a low profile.

What Does Neo Marketing's P/S Mean For Investors?

Following Neo Marketing's share price tumble, its P/S is just clinging on to the industry median P/S. 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.

As we've seen, Neo Marketing's three-year revenue trends seem to be contributing to its P/S, given they look similar to current industry expectations. With previous revenue trends that keep up with the current industry outlook, it's hard to justify the company's P/S ratio deviating much from it's current point. Given the current circumstances, it seems improbable that the share price will experience any significant movement in either direction in the near future if recent medium-term revenue trends persist.

Before you settle on your opinion, we've discovered 4 warning signs for Neo Marketing (1 is potentially serious!) that 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).