Optimistic Investors Push Dongsin Engineering & Construction (KOSDAQ:025950) Shares Up 56% But Growth Is Lacking

Dongsin Engineering & Construction (KOSDAQ:025950) shares have had a really impressive month, gaining 56% after a shaky period beforehand. Not all shareholders will be feeling jubilant, since the share price is still down a very disappointing 34% in the last twelve months.

After such a large jump in price, when almost half of the companies in Korea's Construction industry have price-to-sales ratios (or "P/S") below 0.3x, you may consider Dongsin Engineering & Construction as a stock not worth researching with its 4.6x P/S ratio. However, the P/S might be quite high for a reason and it requires further investigation to determine if it's justified.

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See our latest analysis for Dongsin Engineering & Construction

How Dongsin Engineering & Construction Has Been Performing

For instance, Dongsin Engineering & Construction'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.

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 Dongsin Engineering & Construction's earnings, revenue and cash flow.

Is There Enough Revenue Growth Forecasted For Dongsin Engineering & Construction?

Dongsin Engineering & Construction's P/S ratio would be typical for a company that's expected to deliver very strong growth, and importantly, perform much better than the industry.

In reviewing the last year of financials, we were disheartened to see the company's revenues fell to the tune of 42%. The last three years don't look nice either as the company has shrunk revenue by 18% in aggregate. Accordingly, shareholders would have felt downbeat about the medium-term rates of revenue growth.

Comparing that to the industry, which is predicted to deliver 4.3% growth in the next 12 months, the company's downward momentum based on recent medium-term revenue results is a sobering picture.

With this in mind, we find it worrying that Dongsin Engineering & Construction's P/S exceeds that of its industry peers. Apparently many investors in the company are way more bullish than recent times would indicate and aren't willing to let go of their stock at any price. Only the boldest would assume these prices are sustainable as a continuation of recent revenue trends is likely to weigh heavily on the share price eventually.

What Does Dongsin Engineering & Construction's P/S Mean For Investors?

Shares in Dongsin Engineering & Construction have seen a strong upwards swing lately, which has really helped boost its P/S figure. It's argued the price-to-sales ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

We've established that Dongsin Engineering & Construction currently trades on a much higher than expected P/S since its recent revenues have been in decline over the medium-term. Right now we aren't comfortable with the high P/S as this revenue performance is highly unlikely to support such positive sentiment for long. Unless the recent medium-term conditions improve markedly, investors will have a hard time accepting the share price as fair value.

And what about other risks? Every company has them, and we've spotted 1 warning sign for Dongsin Engineering & Construction you should know about.

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.