There's Reason For Concern Over WOORIM POWER TRAIN SOLUTION Co., Ltd.'s (KOSDAQ:101170) Massive 26% Price Jump

WOORIM POWER TRAIN SOLUTION Co., Ltd. (KOSDAQ:101170) shares have continued their recent momentum with a 26% gain in the last month alone. Looking back a bit further, it's encouraging to see the stock is up 61% in the last year.

Following the firm bounce in price, given close to half the companies operating in Korea's Machinery industry have price-to-sales ratios (or "P/S") below 1.1x, you may consider WOORIM POWER TRAIN SOLUTION as a stock to potentially avoid with its 1.9x P/S ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the elevated P/S.

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View our latest analysis for WOORIM POWER TRAIN SOLUTION

What Does WOORIM POWER TRAIN SOLUTION's P/S Mean For Shareholders?

For instance, WOORIM POWER TRAIN SOLUTION's receding revenue in recent times would have to be some food for thought. It might be that many expect the company to still outplay most other companies over the coming period, which has kept the P/S from collapsing. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

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 WOORIM POWER TRAIN SOLUTION's earnings, revenue and cash flow.

How Is WOORIM POWER TRAIN SOLUTION's Revenue Growth Trending?

The only time you'd be truly comfortable seeing a P/S as high as WOORIM POWER TRAIN SOLUTION's is when the company's growth is on track to outshine the industry.

Retrospectively, the last year delivered a frustrating 23% decrease to the company's top line. As a result, revenue from three years ago have also fallen 10% overall. So unfortunately, we have to acknowledge that the company has not done a great job of growing revenue over that time.

Comparing that to the industry, which is predicted to deliver 23% 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 WOORIM POWER TRAIN SOLUTION'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. There's a very good chance existing shareholders are setting themselves up for future disappointment if the P/S falls to levels more in line with the recent negative growth rates.

The Bottom Line On WOORIM POWER TRAIN SOLUTION's P/S

WOORIM POWER TRAIN SOLUTION shares have taken a big step in a northerly direction, but its P/S is elevated as a result. 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 WOORIM POWER TRAIN SOLUTION currently trades on a much higher than expected P/S since its recent revenues have been in decline over the medium-term. With a revenue decline on investors' minds, the likelihood of a souring sentiment is quite high which could send the P/S back in line with what we'd expect. Should recent medium-term revenue trends persist, it would pose a significant risk to existing shareholders' investments and prospective investors will have a hard time accepting the current value of the stock.

You should always think about risks. Case in point, we've spotted 3 warning signs for WOORIM POWER TRAIN SOLUTION you should be aware of, and 2 of them don't sit too well with us.

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.