There's Reason For Concern Over Contec.,Co.Ltd's (KOSDAQ:451760) Massive 29% Price Jump

The Contec.,Co.Ltd (KOSDAQ:451760) share price has done very well over the last month, posting an excellent gain of 29%. Notwithstanding the latest gain, the annual share price return of 6.5% isn't as impressive.

Although its price has surged higher, you could still be forgiven for feeling indifferent about Contec.Co.Ltd's P/S ratio of 1.6x, since the median price-to-sales (or "P/S") ratio for the Aerospace & Defense industry in Korea is also close to 2x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/S.

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Check out our latest analysis for Contec.Co.Ltd

What Does Contec.Co.Ltd's Recent Performance Look Like?

Contec.Co.Ltd certainly has been doing a good job lately as it's been growing revenue more than most other companies. It might be that many expect the strong revenue performance to wane, which has kept the P/S ratio from rising. If not, then existing shareholders have reason to be feeling optimistic about the future direction of the share price.

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Do Revenue Forecasts Match The P/S Ratio?

Contec.Co.Ltd'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 an exceptional 141% gain to the company's top line. This great performance means it was also able to deliver immense revenue growth over the last three years. So we can start by confirming that the company has done a tremendous job of growing revenue over that time.

Turning to the outlook, the next year should generate growth of 12% as estimated by the one analyst watching the company. With the industry predicted to deliver 39% growth, the company is positioned for a weaker revenue result.

With this in mind, we find it intriguing that Contec.Co.Ltd's P/S is closely matching its industry peers. It seems most investors are ignoring the fairly limited growth expectations and are willing to pay up for exposure to the stock. Maintaining these prices will be difficult to achieve as this level of revenue growth is likely to weigh down the shares eventually.

What We Can Learn From Contec.Co.Ltd's P/S?

Contec.Co.Ltd appears to be back in favour with a solid price jump bringing its P/S back in line with other companies in the industry We'd say the price-to-sales ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

Our look at the analysts forecasts of Contec.Co.Ltd's revenue prospects has shown that its inferior revenue outlook isn't negatively impacting its P/S as much as we would have predicted. At present, we aren't confident in the P/S as the predicted future revenues aren't likely to support a more positive sentiment for long. 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.

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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.