Global Tax Free Co., Ltd.'s (KOSDAQ:204620) P/S Is Still On The Mark Following 29% Share Price Bounce

Despite an already strong run, Global Tax Free Co., Ltd. (KOSDAQ:204620) shares have been powering on, with a gain of 29% in the last thirty days. The annual gain comes to 103% following the latest surge, making investors sit up and take notice.

Since its price has surged higher, you could be forgiven for thinking Global Tax Free is a stock to steer clear of with a price-to-sales ratios (or "P/S") of 3.5x, considering almost half the companies in Korea's Professional Services industry have P/S ratios below 1.3x. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly elevated P/S.

AI is about to change healthcare. These 20 stocks are working on everything from early diagnostics to drug discovery. The best part - they are all under $10bn in marketcap - there is still time to get in early.

View our latest analysis for Global Tax Free

How Global Tax Free Has Been Performing

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.

Is There Enough Revenue Growth Forecasted For Global Tax Free?

In order to justify its P/S ratio, Global Tax Free would need to produce outstanding growth that's well in excess of the industry.

If we review the last year of revenue growth, the company posted a terrific increase of 50%. Pleasingly, revenue has also lifted 263% 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.

Shifting to the future, estimates from the one analyst covering the company suggest revenue should grow by 30% over the next year. Meanwhile, the rest of the industry is forecast to only expand by 14%, which is noticeably less attractive.

In light of this, it's understandable that Global Tax Free's P/S sits above the majority of other companies. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.

The Key Takeaway

Global Tax Free's P/S has grown nicely over the last month thanks to a handy boost in the share price. 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. Right now shareholders are comfortable with the P/S as they are quite confident future revenues aren't under threat. Unless the analysts have really missed the mark, these strong revenue forecasts should keep the share price buoyant.

Before you settle on your opinion, we've discovered 1 warning sign for Global Tax Free that you should be aware of.

If you're unsure about the strength of Global Tax Free's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.