SP Systems Co.,Ltd. (KOSDAQ:317830) Stocks Shoot Up 28% But Its P/S Still Looks Reasonable

Despite an already strong run, SP Systems Co.,Ltd. (KOSDAQ:317830) shares have been powering on, with a gain of 28% in the last thirty days. Unfortunately, the gains of the last month did little to right the losses of the last year with the stock still down 13% over that time.

In spite of the firm bounce in price, it's still not a stretch to say that SP SystemsLtd's price-to-sales (or "P/S") ratio of 1.4x right now seems quite "middle-of-the-road" compared to the Machinery industry in Korea, where the median P/S ratio is around 0.9x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/S.

View our latest analysis for SP SystemsLtd

How SP SystemsLtd Has Been Performing

SP SystemsLtd has been doing a good job lately as it's been growing revenue at a solid pace. One possibility is that the P/S is moderate because investors think this respectable revenue growth might not be enough to outperform the broader industry in the near future. If that doesn't eventuate, then existing shareholders probably aren't too pessimistic about the future direction of the share price.

Although there are no analyst estimates available for SP SystemsLtd, take a look at this free data-rich visualisation to see how the company stacks up on earnings, revenue and cash flow.

How Is SP SystemsLtd's Revenue Growth Trending?

The only time you'd be comfortable seeing a P/S like SP SystemsLtd's is when the company's growth is tracking the industry closely.

Retrospectively, the last year delivered an exceptional 20% gain to the company's top line. Pleasingly, revenue has also lifted 108% in aggregate from three years ago, thanks to the last 12 months of growth. Therefore, it's fair to say the revenue growth recently has been superb for the company.

Comparing that to the industry, which is predicted to deliver 26% growth in the next 12 months, the company's momentum is pretty similar based on recent medium-term annualised revenue results.

With this in consideration, it's clear to see why SP SystemsLtd's P/S matches up closely to its industry peers. Apparently shareholders are comfortable to simply hold on assuming the company will continue keeping a low profile.

What Does SP SystemsLtd's P/S Mean For Investors?

Its shares have lifted substantially and now SP SystemsLtd's P/S is back within range of the industry median. Generally, our preference is to limit the use of the price-to-sales ratio to establishing what the market thinks about the overall health of a company.

It appears to us that SP SystemsLtd maintains its moderate P/S off the back of its recent three-year growth being in line with the wider industry forecast. Right now shareholders are comfortable with the P/S as they are quite confident future revenue won't throw up any surprises. Given the current circumstances, it seems improbable that the share price will experience any significant movement in either direction in the near future if recent medium-term revenue trends persist.

You should always think about risks. Case in point, we've spotted 3 warning signs for SP SystemsLtd you should be aware of, and 2 of them are potentially serious.

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.