There's Reason For Concern Over AztechWB Co., Ltd.'s (KOSDAQ:032080) Massive 38% Price Jump

AztechWB Co., Ltd. (KOSDAQ:032080) shareholders have had their patience rewarded with a 38% share price jump in the last month. Taking a wider view, although not as strong as the last month, the full year gain of 20% is also fairly reasonable.

Following the firm bounce in price, you could be forgiven for thinking AztechWB is a stock not worth researching with a price-to-sales ratios (or "P/S") of 1.1x, considering almost half the companies in Korea's Luxury industry have P/S ratios below 0.4x. However, the P/S might be high for a reason and it requires further investigation to determine if it's justified.

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Check out our latest analysis for AztechWB

How AztechWB Has Been Performing

As an illustration, revenue has deteriorated at AztechWB over the last year, which is not ideal at all. One possibility is that the P/S is high because investors think the company will still do enough to outperform the broader industry in the near future. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

Want the full picture on earnings, revenue and cash flow for the company? Then our free report on AztechWB will help you shine a light on its historical performance.

How Is AztechWB's Revenue Growth Trending?

In order to justify its P/S ratio, AztechWB would need to produce impressive growth in excess of the industry.

In reviewing the last year of financials, we were disheartened to see the company's revenues fell to the tune of 4.6%. As a result, revenue from three years ago have also fallen 2.7% overall. So unfortunately, we have to acknowledge that the company has not done a great job of growing revenue over that time.

Weighing that medium-term revenue trajectory against the broader industry's one-year forecast for expansion of 7.0% shows it's an unpleasant look.

With this in mind, we find it worrying that AztechWB's P/S exceeds that of its industry peers. Apparently many investors in the company are way more bullish than recent times would indicate and aren't willing to let go of their stock at any price. There's a very good chance existing shareholders are setting themselves up for future disappointment if the P/S falls to levels more in line with the recent negative growth rates.

The Key Takeaway

AztechWB 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 AztechWB currently trades on a much higher than expected P/S since its recent revenues have been in decline over the medium-term. When we see revenue heading backwards and underperforming the industry forecasts, we feel the possibility of the share price declining is very real, bringing the P/S back into the realm of reasonability. Unless the recent medium-term conditions improve markedly, investors will have a hard time accepting the share price as fair value.

And what about other risks? Every company has them, and we've spotted 3 warning signs for AztechWB (of which 1 makes us a bit uncomfortable!) you should know about.

If these risks are making you reconsider your opinion on AztechWB, 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.