HJ Shipbuilding & Construction Co., Ltd.'s (KRX:097230) 129% Share Price Surge Not Quite Adding Up

HJ Shipbuilding & Construction Co., Ltd. (KRX:097230) shares have continued their recent momentum with a 129% gain in the last month alone. The last 30 days were the cherry on top of the stock's 943% gain in the last year, which is nothing short of spectacular.

Even after such a large jump in price, you could still be forgiven for feeling indifferent about HJ Shipbuilding & Construction's P/S ratio of 1.3x, since the median price-to-sales (or "P/S") ratio for the Machinery industry in Korea is about the same. 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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See our latest analysis for HJ Shipbuilding & Construction

How Has HJ Shipbuilding & Construction Performed Recently?

For example, consider that HJ Shipbuilding & Construction's financial performance has been poor lately as its revenue has been in decline. Perhaps investors believe the recent revenue performance is enough to keep in line with the industry, which is keeping the P/S from dropping off. If you like the company, you'd at least be hoping this is the case so that you could potentially pick up some stock while it's not quite in favour.

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

Is There Some Revenue Growth Forecasted For HJ Shipbuilding & Construction?

HJ Shipbuilding & Construction'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 a frustrating 16% decrease to the company's top line. At least revenue has managed not to go completely backwards from three years ago in aggregate, thanks to the earlier period of growth. 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 deliver 15% growth in the next 12 months, the company's momentum is weaker, based on recent medium-term annualised revenue results.

With this information, we find it interesting that HJ Shipbuilding & Construction is trading at a fairly similar P/S compared to the industry. It seems most investors are ignoring the fairly limited recent growth rates and are willing to pay up for exposure to the stock. Maintaining these prices will be difficult to achieve as a continuation of recent revenue trends is likely to weigh down the shares eventually.

What Does HJ Shipbuilding & Construction's P/S Mean For Investors?

HJ Shipbuilding & Construction 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 examination of HJ Shipbuilding & Construction revealed its poor three-year revenue trends aren't resulting in a lower P/S as per our expectations, given they look worse than current industry outlook. Right now we are uncomfortable with the P/S as this revenue performance isn't likely to support a more positive sentiment for long. Unless the recent medium-term conditions improve, it's hard to accept the current share price as fair value.

You should always think about risks. Case in point, we've spotted 3 warning signs for HJ Shipbuilding & Construction you should be aware of, and 2 of them shouldn't be ignored.

If these risks are making you reconsider your opinion on HJ Shipbuilding & 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.