Revenues Tell The Story For Dongsin Engineering & Construction (KOSDAQ:025950) As Its Stock Soars 29%

Dongsin Engineering & Construction (KOSDAQ:025950) shares have continued their recent momentum with a 29% gain in the last month alone. The annual gain comes to 122% following the latest surge, making investors sit up and take notice.

After such a large jump in price, given around half 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 to avoid entirely with its 2.9x 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.

See our latest analysis for Dongsin Engineering & Construction

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

With revenue growth that's exceedingly strong of late, Dongsin Engineering & Construction has been doing very well. Perhaps the market is expecting future revenue performance to outperform the wider market, which has seemingly got people interested in the stock. 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 Dongsin Engineering & Construction, take a look at this free data-rich visualisation to see how the company stacks up on earnings, revenue and cash flow.

How Is Dongsin Engineering & Construction's Revenue Growth Trending?

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

If we review the last year of revenue growth, the company posted a terrific increase of 47%. Pleasingly, revenue has also lifted 151% in aggregate from three years ago, thanks to the last 12 months of growth. So we can start by confirming that the company has done a great job of growing revenue over that time.

Comparing that recent medium-term revenue trajectory with the industry's one-year growth forecast of 0.4% shows it's noticeably more attractive.

In light of this, it's understandable that Dongsin Engineering & Construction's P/S sits above the majority of other companies. Presumably shareholders aren't keen to offload something they believe will continue to outmanoeuvre the wider industry.

The Key Takeaway

Shares in Dongsin Engineering & Construction have seen a strong upwards swing lately, which has really helped boost its P/S figure. Using the price-to-sales ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

As we suspected, our examination of Dongsin Engineering & Construction revealed its three-year revenue trends are contributing to its high P/S, given they look better than current industry expectations. In the eyes of shareholders, the probability of a continued growth trajectory is great enough to prevent the P/S from pulling back. Barring any significant changes to the company's ability to make money, the share price should continue to be propped up.

Before you settle on your opinion, we've discovered 2 warning signs for Dongsin Engineering & Construction (1 is potentially serious!) that you should be aware of.

It's important to make sure you look for a great company, not just the first idea you come across. So if growing profitability aligns with your idea of a great company, take a peek at this free list of interesting companies with strong recent earnings growth (and a low P/E).

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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.