Newtree Co., Ltd. (KOSDAQ:270870)’s 27% drop shows sentiment matches sales

: Newtree Co., Ltd. (KOSDAQ:270870) Shareholders will not be happy to hear that the share price has had a very poor month, falling 27% and erasing the positive performance of the previous period. In fact, the recent decline has reduced the annual gain over the past twelve months to a relatively modest 4.1%.

Since the price has dropped significantly and about half of the companies operating in the Korean personal care industry have a price-to-sales ratio (or “P/S”) above 1.2, one could consider Newtree with its P/S ratio of 0.5 an attractive investment. Still, we would have to dig a little deeper to determine if there is a rational basis for the reduced P/S.

Check out our latest analysis for Newtree

How has Newtree developed recently?

For example, Newtree’s recent declining revenues should give cause for pause. Perhaps the market believes that the recent revenue performance is not good enough to sustain the industry, which would hurt the P/S ratio. However, if this is not the case, existing shareholders could be optimistic about the future direction of the share price.

Although there are no analyst estimates for Newtree, take a look at these free Data-rich visualization to see how the company is performing in terms of profit, revenue and cash flow.

Is Newtree forecast to grow revenue?

A P/S ratio as low as Newtree’s would only be truly comfortable if the company’s growth lagged behind the industry.

First, if we look back, the company’s revenue growth last year was not exactly exciting as it posted a disappointing 15% decline. As a result, revenue from three years ago has also fallen by a total of 33%. Accordingly, shareholders were sobered about medium-term revenue growth rates.

If you compare this medium-term sales development with the one-year forecast for the entire industry, which assumes growth of 16%, this is not a good prospect.

With that in mind, we understand why Newtree’s P/S ratio is lower than most of its peers in the industry. Still, there’s no guarantee that the P/S ratio has already bottomed out, as revenues are declining. Even just maintaining these prices could be difficult, as recent revenue trends are already weighing on shares.

The conclusion on Newtrees P/S

Newtree’s price-to-sales ratio has been declining along with its share price. It’s not useful to use the price-to-sales ratio alone to determine whether you should sell your shares, but it can be a handy guide to the company’s future prospects.

It is no surprise that Newtree maintains its low P/S ratio due to declining revenues over the medium term. At this point, investors believe that the potential for revenue growth is not large enough to justify a higher P/S ratio. Under the current circumstances, it seems unlikely that the share price will see a significant move in either direction in the near future if recent medium-term revenue trends continue.

Please note, however, Newtree shows 3 warning signals in our investment analysis, and one of them is a little unpleasant.

If this Risks make you rethink your opinion of Newtreeexplore our interactive list of high-quality stocks to get a sense of what else is out there.

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