Market Might Still Lack Some Conviction On Woongjin Co., Ltd. (KRX:016880) Even After 25% Share Price Boost

Explore Woongjin's Fair Values from the Community and select yours

Woongjin Co., Ltd. (KRX:016880) shares have continued their recent momentum with a 25% gain in the last month alone. The last month tops off a massive increase of 240% in the last year.

Although its price has surged higher, you could still be forgiven for feeling indifferent about Woongjin's P/S ratio of 0.3x, since the median price-to-sales (or "P/S") ratio for the Industrials industry in Korea is also close to 0.4x. 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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View our latest analysis for Woongjin

What Does Woongjin's P/S Mean For Shareholders?

For instance, Woongjin's receding revenue in recent times would have to be some food for thought. 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.

In reviewing the last year of financials, we were disheartened to see the company's revenues fell to the tune of 1.2%. 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. Accordingly, shareholders probably wouldn't have been overly satisfied with the unstable medium-term growth rates.

Comparing that to the industry, which is predicted to shrink 9.5% in the next 12 months, the company's downward momentum is still superior based on recent medium-term annualised revenue results.

With this in consideration, we find it intriguing but explainable that Woongjin's P/S matches closely with its industry peers. Even if the company's recent growth rates continue outperforming the industry, shrinking revenues are unlikely to lead to a stable P/S long-term. Even just maintaining these prices will be difficult to achieve as recent revenue trends are already weighing down the shares.

What Does Woongjin's P/S Mean For Investors?

Woongjin appears to be back in favour with a solid price jump bringing its P/S back in line with other companies in the industry 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.

Our examination of Woongjin revealed its narrower three-year contraction in revenue isn't contributing to its P/S as much as we would have predicted, given the industry is set to shrink even more. There could be some unobserved threats to revenue preventing the P/S ratio from matching this more attractive performance. Perhaps there is some hesitation about the company's ability to deviate from the industry's dismal performance and maintain a relatively smaller revenue decline. At least the risk of a price drop looks to be subdued, but investors seem to think future revenue could see some volatility.

Plus, you should also learn about these 3 warning signs we've spotted with Woongjin (including 1 which is a bit concerning).

If these risks are making you reconsider your opinion on Woongjin, 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.