SMBEXEL Company (KRX:010580) Stocks Shoot Up 35% But Its P/S Still Looks Reasonable

SMBEXEL Company (KRX:010580) shareholders have had their patience rewarded with a 35% share price jump in the last month. Taking a wider view, although not as strong as the last month, the full year gain of 14% is also fairly reasonable.

After such a large jump in price, when almost half of the companies in Korea's Auto Components industry have price-to-sales ratios (or "P/S") below 0.2x, you may consider SMBEXEL as a stock probably not worth researching with its 1.1x 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 as high as it is.

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See our latest analysis for SMBEXEL

What Does SMBEXEL's Recent Performance Look Like?

For instance, SMBEXEL's receding revenue in recent times would have to be some food for thought. Perhaps the market believes the company can do enough to outperform the rest of the industry in the near future, which is keeping the P/S ratio high. If not, then existing shareholders may be quite nervous about the viability of the share price.

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

How Is SMBEXEL's Revenue Growth Trending?

There's an inherent assumption that a company should outperform the industry for P/S ratios like SMBEXEL's to be considered reasonable.

In reviewing the last year of financials, we were disheartened to see the company's revenues fell to the tune of 15%. Even so, admirably revenue has lifted 136% in aggregate from three years ago, notwithstanding the last 12 months. Accordingly, while they would have preferred to keep the run going, shareholders would definitely welcome the medium-term rates of revenue growth.

This is in contrast to the rest of the industry, which is expected to grow by 13% over the next year, materially lower than the company's recent medium-term annualised growth rates.

In light of this, it's understandable that SMBEXEL's P/S sits above the majority of other companies. It seems most investors are expecting this strong growth to continue and are willing to pay more for the stock.

The Bottom Line On SMBEXEL's P/S

SMBEXEL shares have taken a big step in a northerly direction, but its P/S is elevated as a result. 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.

We've established that SMBEXEL maintains its high P/S on the strength of its recent three-year growth being higher than the wider industry forecast, as expected. In the eyes of shareholders, the probability of a continued growth trajectory is great enough to prevent the P/S from pulling back. Unless the recent medium-term conditions change, they will continue to provide strong support to the share price.

Having said that, be aware SMBEXEL is showing 1 warning sign in our investment analysis, you should know about.

If you're unsure about the strength of SMBEXEL's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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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.