Revenues Not Telling The Story For SG Global Co.,Ltd. (KRX:001380) After Shares Rise 27%

Despite an already strong run, SG Global Co.,Ltd. (KRX:001380) shares have been powering on, with a gain of 27% in the last thirty days. The annual gain comes to 118% following the latest surge, making investors sit up and take notice.

After such a large jump in price, given close to half the companies operating in Korea's Luxury industry have price-to-sales ratios (or "P/S") below 0.4x, you may consider SG GlobalLtd as a stock to potentially avoid with its 1.3x 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 as high as it is.

Check out our latest analysis for SG GlobalLtd

What Does SG GlobalLtd's Recent Performance Look Like?

The revenue growth achieved at SG GlobalLtd over the last year would be more than acceptable for most companies. It might be that many expect the respectable revenue performance to beat most other companies over the coming period, which has increased investors’ willingness to pay up for the stock. However, if this isn't the case, investors might get caught out paying too much for the stock.

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

Is There Enough Revenue Growth Forecasted For SG GlobalLtd?

There's an inherent assumption that a company should outperform the industry for P/S ratios like SG GlobalLtd's to be considered reasonable.

Retrospectively, the last year delivered an exceptional 25% gain to the company's top line. Revenue has also lifted 27% in aggregate from three years ago, mostly thanks to the last 12 months of growth. Therefore, it's fair to say the revenue growth recently has been respectable for the company.

Comparing that to the industry, which is predicted to deliver 7.0% growth in the next 12 months, the company's momentum is pretty similar based on recent medium-term annualised revenue results.

In light of this, it's curious that SG GlobalLtd's P/S sits above the majority of other companies. It seems most investors are ignoring the fairly average recent growth rates and are willing to pay up for exposure to the stock. Nevertheless, they may be setting themselves up for future disappointment if the P/S falls to levels more in line with recent growth rates.

What We Can Learn From SG GlobalLtd's P/S?

SG GlobalLtd shares have taken a big step in a northerly direction, but its P/S is elevated as a result. 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.

Our examination of SG GlobalLtd revealed its three-year revenue trends aren't impacting its high P/S as much as we would have predicted, given they look similar to current industry expectations. When we see average revenue with industry-like growth combined with a high P/S, we suspect the share price is at risk of declining, bringing the P/S back in line with the industry too. Unless the recent medium-term conditions improve, it's challenging to accept these prices as being reasonable.

Plus, you should also learn about these 2 warning signs we've spotted with SG GlobalLtd.

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.