What You Can Learn From Sambu Engineering & Construction Co., Ltd's (KRX:001470) P/S

When close to half the companies in the Construction industry in Korea have price-to-sales ratios (or "P/S") below 0.3x, you may consider Sambu Engineering & Construction Co., Ltd (KRX:001470) as a stock to potentially avoid with its 0.9x 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 as high as it is.

Check out our latest analysis for Sambu Engineering & Construction

How Has Sambu Engineering & Construction Performed Recently?

Sambu Engineering & Construction certainly has been doing a great job lately as it's been growing its revenue at a really rapid pace. The P/S ratio is probably high because investors think this strong revenue growth will be enough to outperform the broader industry in the near future. If not, then existing shareholders might be a little nervous about the viability of the share price.

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 Sambu Engineering & Construction's earnings, revenue and cash flow.

How Is Sambu Engineering & Construction's Revenue Growth Trending?

In order to justify its P/S ratio, Sambu Engineering & Construction would need to produce impressive growth in excess of the industry.

Retrospectively, the last year delivered an exceptional 43% gain to the company's top line. The latest three year period has also seen an excellent 60% overall rise in revenue, aided by its short-term performance. So we can start by confirming that the company has done a great job of growing revenue over that time.

This is in contrast to the rest of the industry, which is expected to grow by 0.4% over the next year, materially lower than the company's recent medium-term annualised growth rates.

With this information, we can see why Sambu Engineering & Construction is trading at such a high P/S compared to the industry. Presumably shareholders aren't keen to offload something they believe will continue to outmanoeuvre the wider industry.

The Final Word

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 Sambu Engineering & Construction 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. Barring any significant changes to the company's ability to make money, the share price should continue to be propped up.

It's always necessary to consider the ever-present spectre of investment risk. We've identified 4 warning signs with Sambu Engineering & Construction (at least 2 which are potentially serious), and understanding these should be part of your investment process.

If these risks are making you reconsider your opinion on Sambu Engineering & Construction, explore our interactive list of high quality stocks to get an idea of what else is out there.

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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.