The Luokung Technology Corp. (NASDAQ:LKCO) share price has softened a substantial 25% over the previous 30 days, handing back much of the gains the stock has made lately.    For any long-term shareholders, the last month ends a year to forget by locking in a 56% share price decline.  

Since its price has dipped substantially, Luokung Technology's price-to-sales (or "P/S") ratio of 0.2x might make it look like a buy right now compared to the Interactive Media and Services industry in the United States, where around half of the companies have P/S ratios above 1.5x and even P/S above 4x are quite common.   Although, it's not wise to just take the P/S at face value as there may be an explanation why it's limited.  

NasdaqCM:LKCO Price to Sales Ratio vs Industry April 24th 2024

How Luokung Technology Has Been Performing

As an illustration, revenue has deteriorated at Luokung Technology over the last year, which is not ideal at all.   Perhaps the market believes the recent revenue performance isn't good enough to keep up the industry, causing the P/S ratio to suffer.  However, if this doesn't eventuate then existing shareholders may be feeling optimistic about the future direction of the share price.    

We don't have analyst forecasts, but you can see how recent trends are setting up the company for the future by checking out our free report on Luokung Technology's earnings, revenue and cash flow.  

How Is Luokung Technology's Revenue Growth Trending?  

Luokung Technology's P/S ratio would be typical for a company that's only expected to deliver limited growth, and importantly, perform worse than the industry.  

Retrospectively, the last year delivered a frustrating 78% decrease to the company's top line.   Even so, admirably revenue has lifted 82% in aggregate from three years ago, notwithstanding the last 12 months.  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.  

When compared to the industry's one-year growth forecast of 14%, the most recent medium-term revenue trajectory is noticeably more alluring

With this information, we find it odd that Luokung Technology is trading at a P/S lower than the industry.  Apparently some shareholders believe the recent performance has exceeded its limits and have been accepting significantly lower selling prices.  

What We Can Learn From Luokung Technology's P/S?

The southerly movements of Luokung Technology's shares means its P/S is now sitting at a pretty low level.      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.

We're very surprised to see Luokung Technology currently trading on a much lower than expected P/S since its recent three-year growth is higher than the wider industry forecast.  When we see robust revenue growth that outpaces the industry, we presume that there are notable underlying risks to the company's future performance, which is exerting downward pressure on the P/S ratio.  At least price risks look to be very low if recent medium-term revenue trends continue, but investors seem to think future revenue could see a lot of volatility.    

Plus, you should also learn about these 4 warning signs we've spotted with Luokung Technology (including 3 which don't sit too well with us).  

If companies with solid past earnings growth is up your alley, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
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.