SG Global Co.,Ltd. (KRX:001380) Stock Rockets 33% As Investors Are Less Pessimistic Than Expected

SG Global Co.,Ltd. (KRX:001380) shareholders have had their patience rewarded with a 33% share price jump in the last month. Looking back a bit further, it's encouraging to see the stock is up 39% in the last year.

Following the firm bounce in price, when almost half of the companies in Korea's Luxury industry have price-to-sales ratios (or "P/S") below 0.4x, you may consider SG GlobalLtd as a stock probably not worth researching with its 1x P/S ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the elevated P/S.

View our latest analysis for SG GlobalLtd

What Does SG GlobalLtd's Recent Performance Look Like?

Recent times have been quite advantageous for SG GlobalLtd as its revenue has been rising very briskly. Perhaps the market is expecting future revenue performance to outperform the wider market, which has seemingly got people interested in the stock. However, if this isn't the case, investors might get caught out paying too much for the stock.

We don't have analyst forecasts, but you can see how recent trends are setting up the company for the future by checking out our free report on SG GlobalLtd's earnings, revenue and cash flow.

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.

Taking a look back first, we see that the company grew revenue by an impressive 50% last year. However, the latest three year period hasn't been as great in aggregate as it didn't manage to provide any growth at all. Therefore, it's fair to say that revenue growth has been inconsistent recently for the company.

It's interesting to note that the rest of the industry is similarly expected to grow by 2.4% over the next year, which is fairly even with the company's recent medium-term annualised growth rates.

In light of this, it's curious that SG GlobalLtd's P/S sits above the majority of other companies. Apparently many investors in the company are more bullish than recent times would indicate and aren't willing to let go of their stock right now. 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. 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 didn't expect to see SG GlobalLtd trade at such a high P/S considering its last three-year revenue growth has only been on par with the rest of the industry. 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 there is a significant improvement in the company's medium-term trends, it will be difficult to prevent the P/S ratio from declining to a more reasonable level.

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

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