Investors Appear Satisfied With Global Tax Free Co., Ltd.'s (KOSDAQ:204620) Prospects As Shares Rocket 25%

Despite an already strong run, Global Tax Free Co., Ltd. (KOSDAQ:204620) shares have been powering on, with a gain of 25% in the last thirty days. Looking further back, the 20% rise over the last twelve months isn't too bad notwithstanding the strength over the last 30 days.

Since its price has surged higher, given close to half the companies operating in Korea's Professional Services industry have price-to-sales ratios (or "P/S") below 1.1x, you may consider Global Tax Free as a stock to potentially avoid with its 2.3x P/S ratio. However, the P/S might be high for a reason and it requires further investigation to determine if it's justified.

View our latest analysis for Global Tax Free

How Has Global Tax Free Performed Recently?

Recent times have been advantageous for Global Tax Free as its revenues have been rising faster than most other companies. It seems the market expects this form will continue into the future, hence the elevated P/S ratio. However, if this isn't the case, investors might get caught out paying too much for the stock.

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 high as Global Tax Free's is when the company's growth is on track to outshine the industry.

Retrospectively, the last year delivered an exceptional 90% gain to the company's top line. Spectacularly, three year revenue growth has ballooned by several orders of magnitude, thanks in part to the last 12 months of revenue growth. So we can start by confirming that the company has done a tremendous job of growing revenue over that time.

Looking ahead now, revenue is anticipated to climb by 18% during the coming year according to the three analysts following the company. With the industry only predicted to deliver 9.6%, the company is positioned for a stronger revenue result.

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 Bottom Line On Global Tax Free's P/S

Global Tax Free shares have taken a big step in a northerly direction, but its P/S is elevated as a result. While the price-to-sales ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of revenue expectations.

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.

Having said that, be aware Global Tax Free is showing 1 warning sign in our investment analysis, you should know about.

It's important to make sure you look for a great company, not just the first idea you come across. So if growing profitability aligns with your idea of a great company, take a peek at this free list of interesting companies with strong recent earnings growth (and a low P/E).

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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.