Optimistic Investors Push Daesung Hi-Tech Co., Ltd. (KOSDAQ:129920) Shares Up 30% But Growth Is Lacking

Daesung Hi-Tech Co., Ltd. (KOSDAQ:129920) shares have had a really impressive month, gaining 30% after a shaky period beforehand. Not all shareholders will be feeling jubilant, since the share price is still down a very disappointing 34% in the last twelve months.

Although its price has surged higher, there still wouldn't be many who think Daesung Hi-Tech's price-to-sales (or "P/S") ratio of 0.6x is worth a mention when the median P/S in Korea's Machinery industry is similar at about 0.9x. 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.

Check out our latest analysis for Daesung Hi-Tech

What Does Daesung Hi-Tech's P/S Mean For Shareholders?

Daesung Hi-Tech could be doing better as its revenue has been going backwards lately while most other companies have been seeing positive revenue growth. Perhaps the market is expecting its poor revenue performance to improve, keeping the P/S from dropping. You'd really hope so, otherwise you're paying a relatively elevated price for a company with this sort of growth profile.

Want the full picture on analyst estimates for the company? Then our free report on Daesung Hi-Tech will help you uncover what's on the horizon.

How Is Daesung Hi-Tech's Revenue Growth Trending?

Daesung Hi-Tech's P/S ratio would be typical for a company that's only expected to deliver moderate growth, and importantly, perform in line with the industry.

Retrospectively, the last year delivered a frustrating 10% decrease to the company's top line. As a result, revenue from three years ago have also fallen 17% overall. So unfortunately, we have to acknowledge that the company has not done a great job of growing revenue over that time.

Shifting to the future, estimates from the lone analyst covering the company suggest revenue should grow by 4.3% over the next year. That's shaping up to be materially lower than the 26% growth forecast for the broader industry.

With this information, we find it interesting that Daesung Hi-Tech is trading at a fairly similar P/S compared to the industry. Apparently many investors in the company are less bearish than analysts indicate and aren't willing to let go of their stock right now. 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 Daesung Hi-Tech's P/S

Daesung Hi-Tech's stock has a lot of momentum behind it lately, which has brought its P/S level with the rest of 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.

Our look at the analysts forecasts of Daesung Hi-Tech's revenue prospects has shown that its inferior revenue outlook isn't negatively impacting its P/S as much as we would have predicted. When we see companies with a relatively weaker revenue outlook compared to the industry, we suspect the share price is at risk of declining, sending the moderate P/S lower. Circumstances like this present a risk to current and prospective investors who may see share prices fall if the low revenue growth impacts the sentiment.

There are also other vital risk factors to consider and we've discovered 4 warning signs for Daesung Hi-Tech (1 is significant!) that you should be aware of before investing here.

If you're unsure about the strength of Daesung Hi-Tech's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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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.