HIGEN Motor Co., Ltd.'s (KOSDAQ:160190) 33% Price Boost Is Out Of Tune With Revenues

HIGEN Motor Co., Ltd. (KOSDAQ:160190) shareholders are no doubt pleased to see that the share price has bounced 33% in the last month, although it is still struggling to make up recently lost ground. Longer-term shareholders would be thankful for the recovery in the share price since it's now virtually flat for the year after the recent bounce.

Following the firm bounce in price, given around half the companies in Korea's Electrical industry have price-to-sales ratios (or "P/S") below 1.1x, you may consider HIGEN Motor as a stock to avoid entirely with its 12.4x P/S ratio. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's so lofty.

Our free stock report includes 2 warning signs investors should be aware of before investing in HIGEN Motor. Read for free now.

See our latest analysis for HIGEN Motor

What Does HIGEN Motor's Recent Performance Look Like?

HIGEN Motor has been doing a reasonable job lately as its revenue hasn't declined as much as most other companies. The P/S ratio is probably high because investors think this comparatively better revenue performance will continue. While you'd prefer that its revenue trajectory turned around, you'd at least be hoping it remains less negative than other companies, otherwise you're paying a pretty hefty price for no particular reason.

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

How Is HIGEN Motor's Revenue Growth Trending?

The only time you'd be truly comfortable seeing a P/S as steep as HIGEN Motor's is when the company's growth is on track to outshine the industry decidedly.

Retrospectively, the last year delivered a frustrating 1.8% decrease to the company's top line. This means it has also seen a slide in revenue over the longer-term as revenue is down 11% 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.

Looking ahead now, revenue is anticipated to climb by 4.9% during the coming year according to the lone analyst following the company. With the industry predicted to deliver 12% growth, the company is positioned for a weaker revenue result.

With this in consideration, we believe it doesn't make sense that HIGEN Motor's P/S is outpacing its industry peers. It seems most investors are hoping for a turnaround in the company's business prospects, but the analyst cohort is not so confident this will happen. Only the boldest would assume these prices are sustainable as this level of revenue growth is likely to weigh heavily on the share price eventually.

The Key Takeaway

The strong share price surge has lead to HIGEN Motor's P/S soaring as well. 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.

It comes as a surprise to see HIGEN Motor trade at such a high P/S given the revenue forecasts look less than stellar. When we see a weak revenue outlook, we suspect the share price faces a much greater risk of declining, bringing back down the P/S figures. This places shareholders' investments at significant risk and potential investors in danger of paying an excessive premium.

It is also worth noting that we have found 2 warning signs for HIGEN Motor (1 shouldn't be ignored!) that you need to take into consideration.

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.