Revenues Not Telling The Story For TS Nexgen Co., Ltd. (KOSDAQ:043220) After Shares Rise 69%

The TS Nexgen Co., Ltd. (KOSDAQ:043220) share price has done very well over the last month, posting an excellent gain of 69%. Looking back a bit further, it's encouraging to see the stock is up 35% in the last year.

Since its price has surged higher, when almost half of the companies in Korea's Electrical industry have price-to-sales ratios (or "P/S") below 1.1x, you may consider TS Nexgen 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.

See our latest analysis for TS Nexgen

What Does TS Nexgen's P/S Mean For Shareholders?

The recent revenue growth at TS Nexgen would have to be considered satisfactory if not spectacular. One possibility is that the P/S ratio is high because investors think this good revenue growth will be enough to outperform the broader industry in the near future. If not, then existing shareholders may be a little 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 TS Nexgen's earnings, revenue and cash flow.

Is There Enough Revenue Growth Forecasted For TS Nexgen?

TS Nexgen'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.

If we review the last year of revenue growth, the company posted a worthy increase of 4.1%. The latest three year period has also seen a 17% overall rise in revenue, aided somewhat by its short-term performance. Therefore, it's fair to say the revenue growth recently has been respectable for the company.

Comparing that to the industry, which is predicted to deliver 3.5% growth in the next 12 months, the company's momentum is pretty similar based on recent medium-term annualised revenue results.

With this information, we find it interesting that TS Nexgen is trading at a high P/S compared to the industry. Apparently many investors in the company are more bullish than recent times would indicate and aren't willing to let go of their stock right now. Although, additional gains will be difficult to achieve as a continuation of recent revenue trends would weigh down the share price eventually.

What Does TS Nexgen's P/S Mean For Investors?

TS Nexgen's P/S has grown nicely over the last month thanks to a handy boost in the share price. 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.

Our look into TS Nexgen has shown that it currently trades on a higher than expected P/S since its recent three-year growth is only in line with the wider industry forecast. When we see average revenue with industry-like growth combined with a high P/S, we suspect the share price is at risk of declining, bringing the P/S back in line with the industry too. If recent medium-term revenue trends continue, it will place shareholders' investments at risk and potential investors in danger of paying an unnecessary premium.

Having said that, be aware TS Nexgen is showing 3 warning signs in our investment analysis, you should know about.

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.