Taeyang Metal Industrial Co., Ltd. (KRX:004100) Stock Rockets 31% As Investors Are Less Pessimistic Than Expected

Taeyang Metal Industrial Co., Ltd. (KRX:004100) shares have had a really impressive month, gaining 31% after a shaky period beforehand. Looking back a bit further, it's encouraging to see the stock is up 70% in the last year.

Even after such a large jump in price, it's still not a stretch to say that Taeyang Metal Industrial's price-to-sales (or "P/S") ratio of 0.2x right now seems quite "middle-of-the-road" compared to the Auto Components industry in Korea, seeing as it matches the P/S ratio of the wider industry. Although, it's not wise to simply ignore the P/S without explanation as investors may be disregarding a distinct opportunity or a costly mistake.

We've discovered 4 warning signs about Taeyang Metal Industrial. View them for free.

Check out our latest analysis for Taeyang Metal Industrial

What Does Taeyang Metal Industrial's Recent Performance Look Like?

It looks like revenue growth has deserted Taeyang Metal Industrial recently, which is not something to boast about. One possibility is that the P/S is moderate because investors think this benign revenue growth rate might not be enough to outperform the broader industry in the near future. If you like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's not quite in favour.

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

Is There Some Revenue Growth Forecasted For Taeyang Metal Industrial?

The only time you'd be comfortable seeing a P/S like Taeyang Metal Industrial's is when the company's growth is tracking the industry closely.

Taking a look back first, we see that there was hardly any revenue growth to speak of for the company over the past year. However, a few strong years before that means that it was still able to grow revenue by an impressive 34% in total over the last three years. So while the company has done a solid job in the past, it's somewhat concerning to see revenue growth decline as much as it has.

This is in contrast to the rest of the industry, which is expected to grow by 19% over the next year, materially higher than the company's recent medium-term annualised growth rates.

With this information, we find it interesting that Taeyang Metal Industrial is trading at a fairly similar P/S compared to the industry. It seems most investors are ignoring the fairly limited recent growth rates and are willing to pay up for exposure to the stock. They may be setting themselves up for future disappointment if the P/S falls to levels more in line with recent growth rates.

The Key Takeaway

Taeyang Metal Industrial appears to be back in favour with a solid price jump bringing its P/S back in line with other companies in the industry We'd say the price-to-sales ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

We've established that Taeyang Metal Industrial's average P/S is a bit surprising since its recent three-year growth is lower than the wider industry forecast. Right now we are uncomfortable with the P/S as this revenue performance isn't likely to support a more positive sentiment for long. Unless there is a significant improvement in the company's medium-term performance, it will be difficult to prevent the P/S ratio from declining to a more reasonable level.

Don't forget that there may be other risks. For instance, we've identified 4 warning signs for Taeyang Metal Industrial (2 don't sit too well with us) you should be aware of.

If strong companies turning a profit tickle your fancy, then you'll want to check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).

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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.