There's Reason For Concern Over Nuriplan Co., Ltd.'s (KOSDAQ:069140) Massive 32% Price Jump

Nuriplan Co., Ltd. (KOSDAQ:069140) shares have had a really impressive month, gaining 32% after a shaky period beforehand. But the last month did very little to improve the 64% share price decline over the last year.

Although its price has surged higher, it's still not a stretch to say that Nuriplan's price-to-sales (or "P/S") ratio of 0.2x right now seems quite "middle-of-the-road" compared to the Construction industry in Korea, where the median P/S ratio is around 0.3x. While this might not raise any eyebrows, if the P/S ratio is not justified investors could be missing out on a potential opportunity or ignoring looming disappointment.

See our latest analysis for Nuriplan

What Does Nuriplan's Recent Performance Look Like?

Nuriplan has been doing a decent job lately as it's been growing revenue at a reasonable pace. It might be that many expect the respectable revenue performance to only match most other companies over the coming period, which has kept the P/S from rising. If you like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's not quite in favour.

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

Do Revenue Forecasts Match The P/S Ratio?

In order to justify its P/S ratio, Nuriplan 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 2.8% last year. Ultimately though, it couldn't turn around the poor performance of the prior period, with revenue shrinking 4.5% in total over the last three years. So unfortunately, we have to acknowledge that the company has not done a great job of growing revenue over that time.

In contrast to the company, the rest of the industry is expected to grow by 1.3% over the next year, which really puts the company's recent medium-term revenue decline into perspective.

With this in mind, we find it worrying that Nuriplan's P/S exceeds that of its industry peers. It seems most investors are ignoring the recent poor growth rate and are hoping for a turnaround in the company's business prospects. Only the boldest would assume these prices are sustainable as a continuation of recent revenue trends is likely to weigh on the share price eventually.

The Final Word

Nuriplan appears to be back in favour with a solid price jump bringing its P/S back in line with other companies in the industry 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.

The fact that Nuriplan currently trades at a P/S on par with the rest of the industry is surprising to us since its recent revenues have been in decline over the medium-term, all while the industry is set to grow. When we see revenue heading backwards in the context of growing industry forecasts, it'd make sense to expect a possible share price decline on the horizon, sending the moderate P/S lower. Unless the recent medium-term conditions improve markedly, investors will have a hard time accepting the share price as fair value.

Don't forget that there may be other risks. For instance, we've identified 3 warning signs for Nuriplan (2 don't sit too well with us) you should be aware of.

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.