Why Investors Shouldn't Be Surprised By Orient Precision Industries Inc's (KOSDAQ:065500) 63% Share Price Surge

Orient Precision Industries Inc (KOSDAQ:065500) shares have continued their recent momentum with a 63% gain in the last month alone. This latest share price bounce rounds out a remarkable 842% gain over the last twelve months.

After such a large jump in price, given around half the companies in Korea's Auto Components industry have price-to-sales ratios (or "P/S") below 0.2x, you may consider Orient Precision Industries as a stock to avoid entirely with its 2.4x P/S ratio. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's so lofty.

Our free stock report includes 1 warning sign investors should be aware of before investing in Orient Precision Industries. Read for free now.

Check out our latest analysis for Orient Precision Industries

What Does Orient Precision Industries' Recent Performance Look Like?

Orient Precision Industries has been doing a decent job lately as it's been growing revenue at a reasonable pace. Perhaps the market believes the recent revenue performance is strong enough to outperform the industry, which has inflated the P/S ratio. However, if this isn't the case, investors might get caught out paying too much for the stock.

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

How Is Orient Precision Industries' Revenue Growth Trending?

The only time you'd be truly comfortable seeing a P/S as steep as Orient Precision Industries' is when the company's growth is on track to outshine the industry decidedly.

Taking a look back first, we see that the company managed to grow revenues by a handy 6.5% last year. The latest three year period has also seen an excellent 51% overall rise in revenue, aided somewhat by its short-term performance. So we can start by confirming that the company has done a great job of growing revenues over that time.

When compared to the industry's one-year growth forecast of 6.0%, the most recent medium-term revenue trajectory is noticeably more alluring

With this information, we can see why Orient Precision Industries is trading at such a high P/S compared to the industry. It seems most investors are expecting this strong growth to continue and are willing to pay more for the stock.

What We Can Learn From Orient Precision Industries' P/S?

The strong share price surge has lead to Orient Precision Industries' P/S soaring as well. 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 suspected, our examination of Orient Precision Industries revealed its three-year revenue trends are contributing to its high P/S, given they look better than current industry expectations. At this stage investors feel the potential continued revenue growth in the future is great enough to warrant an inflated P/S. If recent medium-term revenue trends continue, it's hard to see the share price falling strongly in the near future under these circumstances.

It is also worth noting that we have found 1 warning sign for Orient Precision Industries that you need to take into consideration.

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.

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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.