Subdued Growth No Barrier To Ananti Inc. (KOSDAQ:025980) With Shares Advancing 41%

Despite an already strong run, Ananti Inc. (KOSDAQ:025980) shares have been powering on, with a gain of 41% in the last thirty days. The last 30 days bring the annual gain to a very sharp 70%.

Following the firm bounce in price, given close to half the companies operating in Korea's Hospitality industry have price-to-sales ratios (or "P/S") below 1.4x, you may consider Ananti as a stock to potentially avoid with its 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.

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See our latest analysis for Ananti

What Does Ananti's Recent Performance Look Like?

As an illustration, revenue has deteriorated at Ananti 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. If not, then existing shareholders may be quite nervous about the viability of the share price.

Although there are no analyst estimates available for Ananti, take a look at this free data-rich visualisation to see how the company stacks up on earnings, revenue and cash flow.

How Is Ananti's Revenue Growth Trending?

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

In reviewing the last year of financials, we were disheartened to see the company's revenues fell to the tune of 69%. That put a dampener on the good run it was having over the longer-term as its three-year revenue growth is still a noteworthy 14% in total. Although it's been a bumpy ride, it's still fair to say the revenue growth recently has been mostly respectable for the company.

Comparing the recent medium-term revenue trends against the industry's one-year growth forecast of 7.6% shows it's noticeably less attractive.

In light of this, it's alarming that Ananti's P/S sits above the majority of other companies. 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. Only the boldest would assume these prices are sustainable as a continuation of recent revenue trends is likely to weigh heavily on the share price eventually.

The Bottom Line On Ananti's P/S

Ananti shares have taken a big step in a northerly direction, but its P/S is elevated as a result. Using the price-to-sales ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

The fact that Ananti currently trades on a higher P/S relative to the industry is an oddity, since its recent three-year growth is lower than the wider industry forecast. When we observe slower-than-industry revenue growth alongside a high P/S ratio, we assume there to be a significant risk of the share price decreasing, which would result in a lower P/S ratio. Unless the recent medium-term conditions improve markedly, it's very challenging to accept these the share price as being reasonable.

Before you take the next step, you should know about the 2 warning signs for Ananti (1 is a bit concerning!) that we have uncovered.

Of course, profitable companies with a history of great earnings growth are generally safer bets. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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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.