Revenue Signals, Profitability and Stock Mispricing: Evidence from Technology Firms

Aneu Kuraesin, Dede Darwis

Abstract


Focusing specifically on Indonesian technology firms, this paper investigates how profitability dynamics moderate the relationship between revenue-based valuation and future stock returns. Using a quantitative panel framework with a fixed effects model and robust standard errors to control for firm heterogeneity, this paper analyzes 216 firm-quarter observations from 18 technology companies listed on the Indonesia Stock Exchange over the 2022–2024 period. The results show that industry-adjusted price-to-sales deviation (PSDEV) has a negative and significant effect on future stock returns (β = −0.183, p < 0.01), indicating the presence of stock mispricing. Profitability is positively associated with future returns, suggesting that firms with stronger operating performance generate superior stock performance. Crucially, profitability significantly moderates the relationship between valuation deviation and returns, where higher profitability weakens the negative impact of overvaluation. From a practical standpoint, investors can look at profitability as a definitive legitimacy anchor. High profit margins effectively validate steep valuation levels, drastically lowering the odds of walking into a mispricing trap. The present inquiry develops an industry-adjusted revenue-based mispricing framework to show that profitability acts as a critical boundary condition for the relationship between valuation deviation and future returns, especially in the earnings-opaque technology sector.


Keywords


Profitability; Revenue Signals; Stock Mispricing.

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DOI: https://doi.org/10.17509/jaset.v18i1.99352

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