Global Tax Free Co., Ltd.'s (KOSDAQ:204620) P/S Is Still On The Mark Following 28% Share Price Bounce

Global Tax Free Co., Ltd. (KOSDAQ:204620) shares have had a really impressive month, gaining 28% after a shaky period beforehand. The last 30 days bring the annual gain to a very sharp 50%.

Since its price has surged higher, when almost half of the companies in Korea's Professional Services industry have price-to-sales ratios (or "P/S") below 1.4x, you may consider Global Tax Free as a stock not worth researching with its 3.7x 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 so lofty.

Check out our latest analysis for Global Tax Free

What Does Global Tax Free's P/S Mean For Shareholders?

Recent times have been advantageous for Global Tax Free as its revenues have been rising faster than most other companies. The P/S is probably high because investors think this strong revenue performance will continue. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

Keen to find out how analysts think Global Tax Free's future stacks up against the industry? In that case, our free report is a great place to start.

How Is Global Tax Free's Revenue Growth Trending?

The only time you'd be truly comfortable seeing a P/S as steep as Global Tax Free's is when the company's growth is on track to outshine the industry decidedly.

If we review the last year of revenue growth, the company posted a terrific increase of 122%. This great performance means it was also able to deliver immense revenue growth over the last three years. So we can start by confirming that the company has done a tremendous job of growing revenue over that time.

Turning to the outlook, the next year should generate growth of 43% as estimated by the three analysts watching the company. That's shaping up to be materially higher than the 15% growth forecast for the broader industry.

With this information, we can see why Global Tax Free is trading at such a high P/S compared to the industry. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.

What We Can Learn From Global Tax Free's P/S?

The strong share price surge has lead to Global Tax Free's P/S soaring as well. 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.

We've established that Global Tax Free maintains its high P/S on the strength of its forecasted revenue growth being higher than the the rest of the Professional Services industry, as expected. At this stage investors feel the potential for a deterioration in revenues is quite remote, justifying the elevated P/S ratio. Unless the analysts have really missed the mark, these strong revenue forecasts should keep the share price buoyant.

We don't want to rain on the parade too much, but we did also find 2 warning signs for Global Tax Free that you need to be mindful of.

If these risks are making you reconsider your opinion on Global Tax Free, 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.