Taewoong Co.,Ltd's (KOSDAQ:044490) 29% Price Boost Is Out Of Tune With Revenues

Taewoong Co.,Ltd (KOSDAQ:044490) shares have had a really impressive month, gaining 29% after a shaky period beforehand. The last 30 days bring the annual gain to a very sharp 61%.

Although its price has surged higher, there still wouldn't be many who think TaewoongLtd's price-to-sales (or "P/S") ratio of 0.9x is worth a mention when it essentially matches the median P/S in Korea's Machinery industry. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/S.

See our latest analysis for TaewoongLtd

How Has TaewoongLtd Performed Recently?

The revenue growth achieved at TaewoongLtd over the last year would be more than acceptable for most companies. It might be that many expect the respectable revenue performance to wane, which has kept the P/S from rising. Those who are bullish on TaewoongLtd will be hoping that this isn't the case, so that they can pick up the stock at a lower valuation.

Want the full picture on earnings, revenue and cash flow for the company? Then our free report on TaewoongLtd will help you shine a light on its historical performance.

Is There Some Revenue Growth Forecasted For TaewoongLtd?

In order to justify its P/S ratio, TaewoongLtd would need to produce growth that's similar to the industry.

Taking a look back first, we see that the company managed to grow revenues by a handy 13% last year. The solid recent performance means it was also able to grow revenue by 29% in total over the last three years. So we can start by confirming that the company has actually done a good job of growing revenue over that time.

Comparing the recent medium-term revenue trends against the industry's one-year growth forecast of 32% shows it's noticeably less attractive.

With this information, we find it interesting that TaewoongLtd is trading at a fairly similar P/S compared to the industry. Apparently many investors in the company are less bearish than recent times would indicate and aren't willing to let go of their stock right now. Maintaining these prices will be difficult to achieve as a continuation of recent revenue trends is likely to weigh down the shares eventually.

The Final Word

Its shares have lifted substantially and now TaewoongLtd's P/S is back within range of the industry median. Typically, we'd caution against reading too much into price-to-sales ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

We've established that TaewoongLtd's average P/S is a bit surprising since its recent three-year growth is lower than the wider industry forecast. When we see weak revenue with slower than industry growth, we suspect the share price is at risk of declining, bringing the P/S back in line with expectations. Unless the recent medium-term conditions improve, it's hard to accept the current share price as fair value.

A lot of potential risks can sit within a company's balance sheet. Our free balance sheet analysis for TaewoongLtd with six simple checks will allow you to discover any risks that could be an issue.

Of course, profitable companies with a history of great earnings growth are generally safer bets. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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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.