Market Participants Recognise LS materials.,Ltd.'s (KOSDAQ:417200) Revenues Pushing Shares 26% Higher

LS materials.,Ltd. (KOSDAQ:417200) shareholders are no doubt pleased to see that the share price has bounced 26% in the last month, although it is still struggling to make up recently lost ground. But the last month did very little to improve the 64% share price decline over the last year.

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 1x, you may consider LS materials.Ltd as a stock to avoid entirely with its 7.1x 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.

Check out our latest analysis for LS materials.Ltd

What Does LS materials.Ltd's P/S Mean For Shareholders?

LS materials.Ltd has been doing a decent job lately as it's been growing revenue at a reasonable pace. Perhaps the market believes the recent revenue performance is strong enough to outperform the industry, which has inflated the P/S ratio. However, if this isn't the case, investors might get caught out paying too much for the stock.

We don't have analyst forecasts, but you can see how recent trends are setting up the company for the future by checking out our free report on LS materials.Ltd's earnings, revenue and cash flow.

What Are Revenue Growth Metrics Telling Us About The High P/S?

LS materials.Ltd's P/S ratio would be typical for a company that's expected to deliver very strong growth, and importantly, perform much better than the industry.

Taking a look back first, we see that the company managed to grow revenues by a handy 3.0% last year. Pleasingly, revenue has also lifted 231% in aggregate from three years ago, partly thanks to the last 12 months of growth. Accordingly, shareholders would have definitely welcomed those medium-term rates of revenue growth.

When compared to the industry's one-year growth forecast of 8.8%, the most recent medium-term revenue trajectory is noticeably more alluring

With this in consideration, it's not hard to understand why LS materials.Ltd's P/S is high relative to its industry peers. It seems most investors are expecting this strong growth to continue and are willing to pay more for the stock.

The Final Word

Shares in LS materials.Ltd have seen a strong upwards swing lately, which has really helped boost its P/S figure. 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.

As we suspected, our examination of LS materials.Ltd revealed its three-year revenue trends are contributing to its high P/S, given they look better than current industry expectations. In the eyes of shareholders, the probability of a continued growth trajectory is great enough to prevent the P/S from pulling back. If recent medium-term revenue trends continue, it's hard to see the share price falling strongly in the near future under these circumstances.

Having said that, be aware LS materials.Ltd is showing 2 warning signs in our investment analysis, and 1 of those makes us a bit uncomfortable.

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.