Kumyang Green Power Co., Ltd. (KOSDAQ:282720) Looks Just Right With A 29% Price Jump

Kumyang Green Power Co., Ltd. (KOSDAQ:282720) shares have continued their recent momentum with a 29% gain in the last month alone. Looking back a bit further, it's encouraging to see the stock is up 64% in the last year.

Since its price has surged higher, given close to half the companies operating in Korea's Construction industry have price-to-sales ratios (or "P/S") below 0.3x, you may consider Kumyang Green Power as a stock to potentially avoid with its 0.8x P/S ratio. However, the P/S might be high for a reason and it requires further investigation to determine if it's justified.

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See our latest analysis for Kumyang Green Power

What Does Kumyang Green Power's P/S Mean For Shareholders?

Kumyang Green Power has been struggling lately as its revenue has declined faster than most other companies. Perhaps the market is predicting a change in fortunes for the company and is expecting them to blow past the rest of the industry, elevating the P/S ratio. If not, then existing shareholders may be very nervous about the viability of the share price.

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Kumyang Green Power.

Is There Enough Revenue Growth Forecasted For Kumyang Green Power?

There's an inherent assumption that a company should outperform the industry for P/S ratios like Kumyang Green Power's to be considered reasonable.

Taking a look back first, the company's revenue growth last year wasn't something to get excited about as it posted a disappointing decline of 24%. The last three years don't look nice either as the company has shrunk revenue by 2.7% in aggregate. So unfortunately, we have to acknowledge that the company has not done a great job of growing revenue over that time.

Turning to the outlook, the next three years should generate growth of 15% per year as estimated by the only analyst watching the company. With the industry only predicted to deliver 6.0% each year, the company is positioned for a stronger revenue result.

With this in mind, it's not hard to understand why Kumyang Green Power's P/S is high relative to its industry peers. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.

The Key Takeaway

The large bounce in Kumyang Green Power's shares has lifted the company's P/S handsomely. 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.

As we suspected, our examination of Kumyang Green Power's analyst forecasts revealed that its superior revenue outlook is contributing to its high P/S. It appears that shareholders are confident in the company's future revenues, which is propping up the P/S. Unless these conditions change, they will continue to provide strong support to the share price.

A lot of potential risks can sit within a company's balance sheet. Take a look at our free balance sheet analysis for Kumyang Green Power with six simple checks on some of these key factors.

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.