Further Upside For Woongjin Co., Ltd. (KRX:016880) Shares Could Introduce Price Risks After 72% Bounce

Woongjin Co., Ltd. (KRX:016880) shares have had a really impressive month, gaining 72% after a shaky period beforehand. Looking further back, the 24% rise over the last twelve months isn't too bad notwithstanding the strength over the last 30 days.

Even after such a large jump in price, it's still not a stretch to say that Woongjin's price-to-sales (or "P/S") ratio of 0.1x right now seems quite "middle-of-the-road" compared to the Industrials industry in Korea, where the median P/S ratio is around 0.2x. Although, it's not wise to simply ignore the P/S without explanation as investors may be disregarding a distinct opportunity or a costly mistake.

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See our latest analysis for Woongjin

How Woongjin Has Been Performing

For example, consider that Woongjin's financial performance has been poor lately as its revenue has been in decline. One possibility is that the P/S is moderate because investors think the company might still do enough to be in line with the broader industry in the near future. If not, then existing shareholders may be a little nervous about the viability of the share price.

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

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

There's an inherent assumption that a company should be matching the industry for P/S ratios like Woongjin's to be considered reasonable.

Retrospectively, the last year delivered a frustrating 1.0% decrease to the company's top line. Unfortunately, that's brought it right back to where it started three years ago with revenue growth being virtually non-existent overall during that time. So it appears to us that the company has had a mixed result in terms of growing revenue over that time.

Weighing the recent medium-term upward revenue trajectory against the broader industry's one-year forecast for contraction of 7.7% shows it's a great look while it lasts.

With this information, we find it odd that Woongjin is trading at a fairly similar P/S to the industry. It looks like most investors are not convinced the company can maintain its recent positive growth rate in the face of a shrinking broader industry.

What We Can Learn From Woongjin's P/S?

Its shares have lifted substantially and now Woongjin's P/S is back within range of the industry median. 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 mentioned previously, Woongjin currently trades on a P/S on par with the wider industry, but this is lower than expected considering its recent three-year revenue growth is beating forecasts for a struggling industry. When we see a history of positive growth in a struggling industry, but only an average P/S, we assume potential risks are what might be placing pressure on the P/S ratio. One major risk is whether its revenue trajectory can keep outperforming under these tough industry conditions. The fact that the company's relative performance has not provided a kick to the share price suggests that some investors are anticipating revenue instability.

There are also other vital risk factors to consider and we've discovered 4 warning signs for Woongjin (1 is a bit concerning!) that you should be aware of before investing here.

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.