Tbi Motion Technology Co., Ltd. (TWSE:4540) is priced right but growth is lacking

Tbi Motion Technology Co., Ltd. (TWSE:4540) has a price-to-sales multiple (P/S) of 1.4x, which may seem like a fairly attractive investment opportunity given that nearly half of the companies in Taiwan’s machinery industry have a P/S multiple of over 2.2x. However, there may be a reason for the low P/S, and further investigation is needed to determine if it is justified.

Check out our latest analysis for Tbi Motion Technology

Tbi Motion Technology Achievements

As an example, Tbi Motion Technology’s earnings have deteriorated over the past year, which is not ideal at all. One possibility is that the P/S is low because investors don’t think the company will do enough to avoid underperforming the wider industry in the near future. Those who are bullish on Tbi Motion Technology are hoping that isn’t the case and could buy the stock at a lower valuation.

While there are no analyst forecasts, checking the company’s recent developments can give you an idea of ​​what the future holds for the company. free Tbi Motion Technology earnings, revenue and cash flow report.

Is Tbi ​​Motion Technology’s revenue growth forecast?

The assumption is inherently that for a P/S ratio like Tbi Motion Technology’s to be considered reasonable, a company’s performance must be below the industry average.

Looking back, we can start by looking at the past, where the company’s revenue growth last year was nothing to be excited about, falling a disappointing 27%. Over the past three years, the company’s revenue has declined a combined 15% which is not a good look either. Therefore, it’s fair to say that the company’s recent revenue growth has not been great.

In contrast to the company, the broader industry is expected to grow at 19% over the next 12 months, which better reflects the company’s recent medium-term revenue decline.

With this information, it’s not surprising to see that Tbi Motion Technology is trading at a lower P/S than the industry average. That said, there’s still no guarantee that the P/S has bottomed out amid a reversal in earnings. If the company doesn’t improve its sales growth, the P/S could fall to even lower levels.

Key Takeaways

While the price-to-sales ratio isn’t a deciding factor in whether or not to buy a stock, it is a very useful barometer for gauging earnings expectations.

It’s not surprising to see Tbi Motion Technology maintaining a low P/S ratio as its earnings are declining in the medium term. At the moment, investors feel that the potential for earnings improvement is not great enough to justify an increase in the P/S ratio. Given the current situation, it seems unlikely that the share price will move significantly in either direction in the near future as long as the recent medium term earnings trend continues.

You always need to think about risks. As an example, we discovered the following case: 4 warning signs for Tbi Motion Technology There are a few things you should know, three of which are a bit worrying.

If you like companies with a history of strong earnings growthyou might want to take a look at this free A collection of other companies with high earnings growth and low P/E ratios.

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This article by Simply Wall St is general in nature. We use only unbiased methodologies to provide commentary based on historical data and analyst forecasts, and our articles are not intended as financial advice. It is not a recommendation to buy or sell stocks, and does not take into account your objectives, or your financial situation. We seek to provide long-term focused analysis driven by fundamental data. Note that our analysis may not take into account the latest price sensitive company announcements or qualitative material. Simply Wall St has no position in any of the stocks mentioned.

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