What DAEYANG ELECTRIC.Co.,Ltd.'s (KOSDAQ:108380) 27% Share Price Gain Is Not Telling You

DAEYANG ELECTRIC.Co.,Ltd. (KOSDAQ:108380) shares have continued their recent momentum with a 27% gain in the last month alone. The last 30 days bring the annual gain to a very sharp 42%.

Even after such a large jump in price, there still wouldn't be many who think DAEYANG ELECTRIC.Co.Ltd's price-to-sales (or "P/S") ratio of 1x is worth a mention when the median P/S in Korea's Electrical industry is similar at about 1.3x. Although, it's not wise to simply ignore the P/S without explanation as investors may be disregarding a distinct opportunity or a costly mistake.

See our latest analysis for DAEYANG ELECTRIC.Co.Ltd

What Does DAEYANG ELECTRIC.Co.Ltd's P/S Mean For Shareholders?

With revenue growth that's inferior to most other companies of late, DAEYANG ELECTRIC.Co.Ltd has been relatively sluggish. One possibility is that the P/S ratio is moderate because investors think this lacklustre revenue performance will turn around. If not, then existing shareholders may be a little nervous about the viability of the share price.

Keen to find out how analysts think DAEYANG ELECTRIC.Co.Ltd's future stacks up against the industry? In that case, our free report is a great place to start.

Do Revenue Forecasts Match The P/S Ratio?

There's an inherent assumption that a company should be matching the industry for P/S ratios like DAEYANG ELECTRIC.Co.Ltd's to be considered reasonable.

If we review the last year of revenue growth, the company posted a terrific increase of 18%. Despite this strong recent growth, it's still struggling to catch up as its three-year revenue frustratingly shrank by 18% overall. Accordingly, shareholders would have felt downbeat about the medium-term rates of revenue growth.

Looking ahead now, revenue is anticipated to climb by 12% per annum during the coming three years according to the lone analyst following the company. Meanwhile, the rest of the industry is forecast to expand by 18% per year, which is noticeably more attractive.

With this information, we find it interesting that DAEYANG ELECTRIC.Co.Ltd is trading at a fairly similar P/S compared to the industry. It seems most investors are ignoring the fairly limited growth expectations and are willing to pay up for exposure to the stock. These shareholders may be setting themselves up for future disappointment if the P/S falls to levels more in line with the growth outlook.

The Bottom Line On DAEYANG ELECTRIC.Co.Ltd's P/S

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

When you consider that DAEYANG ELECTRIC.Co.Ltd's revenue growth estimates are fairly muted compared to the broader industry, it's easy to see why we consider it unexpected to be trading at its current P/S ratio. At present, we aren't confident in the P/S as the predicted future revenues aren't likely to support a more positive sentiment for long. This places shareholders' investments at risk and potential investors in danger of paying an unnecessary premium.

And what about other risks? Every company has them, and we've spotted 1 warning sign for DAEYANG ELECTRIC.Co.Ltd you should know about.

If companies with solid past earnings growth is up your alley, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

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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.