HD Hyundai Heavy Industries Co.,Ltd.'s (KRX:329180) 26% Price Boost Is Out Of Tune With Revenues

Despite an already strong run, HD Hyundai Heavy Industries Co.,Ltd. (KRX:329180) shares have been powering on, with a gain of 26% in the last thirty days. The last month tops off a massive increase of 175% in the last year.

Since its price has surged higher, you could be forgiven for thinking HD Hyundai Heavy IndustriesLtd is a stock not worth researching with a price-to-sales ratios (or "P/S") of 2.1x, considering almost half the companies in Korea's Machinery industry have P/S ratios below 1x. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the elevated P/S.

Check out our latest analysis for HD Hyundai Heavy IndustriesLtd

How HD Hyundai Heavy IndustriesLtd Has Been Performing

There hasn't been much to differentiate HD Hyundai Heavy IndustriesLtd's and the industry's revenue growth lately. Perhaps the market is expecting future revenue performance to improve, justifying the currently elevated P/S. However, if this isn't the case, investors might get caught out paying too much for the stock.

If you'd like to see what analysts are forecasting going forward, you should check out our free report on HD Hyundai Heavy IndustriesLtd.

Do Revenue Forecasts Match The High P/S Ratio?

The only time you'd be truly comfortable seeing a P/S as high as HD Hyundai Heavy IndustriesLtd's is when the company's growth is on track to outshine the industry.

Retrospectively, the last year delivered an exceptional 24% gain to the company's top line. Pleasingly, revenue has also lifted 77% in aggregate from three years ago, thanks to the last 12 months of growth. So we can start by confirming that the company has done a great job of growing revenue over that time.

Looking ahead now, revenue is anticipated to climb by 9.3% each year during the coming three years according to the analysts following the company. That's shaping up to be similar to the 11% per annum growth forecast for the broader industry.

With this in consideration, we find it intriguing that HD Hyundai Heavy IndustriesLtd's P/S is higher than its industry peers. Apparently many investors in the company are more bullish than analysts indicate and aren't willing to let go of their stock right now. Although, additional gains will be difficult to achieve as this level of revenue growth is likely to weigh down the share price eventually.

What Does HD Hyundai Heavy IndustriesLtd's P/S Mean For Investors?

HD Hyundai Heavy IndustriesLtd's P/S is on the rise since its shares have risen strongly. 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.

Analysts are forecasting HD Hyundai Heavy IndustriesLtd's revenues to only grow on par with the rest of the industry, which has lead to the high P/S ratio being unexpected. The fact that the revenue figures aren't setting the world alight has us doubtful that the company's elevated P/S can be sustainable for the long term. This places shareholders' investments at risk and potential investors in danger of paying an unnecessary premium.

Many other vital risk factors can be found on the company's balance sheet. Take a look at our free balance sheet analysis for HD Hyundai Heavy IndustriesLtd with six simple checks on some of these key factors.

If companies with solid past earnings growth is up your alley, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

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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.