Company K Partners Limited's (KOSDAQ:307930) P/S Is Still On The Mark Following 40% Share Price Bounce

Company K Partners Limited (KOSDAQ:307930) shares have had a really impressive month, gaining 40% after a shaky period beforehand. The last 30 days bring the annual gain to a very sharp 31%.

Since its price has surged higher, given around half the companies in Korea's Capital Markets industry have price-to-sales ratios (or "P/S") below 0.5x, you may consider Company K Partners as a stock to avoid entirely with its 6.8x P/S ratio. However, the P/S might be quite high for a reason and it requires further investigation to determine if it's justified.

See our latest analysis for Company K Partners

How Company K Partners Has Been Performing

For instance, Company K Partners' receding revenue in recent times would have to be some food for thought. It might be that many expect the company to still outplay most other companies over the coming period, which has kept the P/S from collapsing. However, if this isn't the case, investors might get caught out paying too much for the stock.

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

How Is Company K Partners' Revenue Growth Trending?

Company K Partners' P/S ratio would be typical for a company that's expected to deliver very strong growth, and importantly, perform much better than the industry.

In reviewing the last year of financials, we were disheartened to see the company's revenues fell to the tune of 9.0%. As a result, revenue from three years ago have also fallen 32% overall. So unfortunately, we have to acknowledge that the company has not done a great job of growing revenue over that time.

This is in contrast to the rest of the industry, which is expected to decline by 79% over the next year, even worse than the company's recent medium-term annualised revenue decline.

With this information, it might not be hard to see why Company K Partners is trading at a higher P/S in comparison. However, even if the company's recent growth rates were to continue outperforming the industry, shrinking revenues are unlikely to make the P/S premium sustainable over the longer term. Maintaining these prices will be difficult to achieve as a continuation of recent revenue trends is likely to weigh down the shares eventually.

The Bottom Line On Company K Partners' P/S

The strong share price surge has lead to Company K Partners' P/S soaring as well. 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.

As we suspected, our examination of Company K Partners revealed its narrower three-year contraction in revenue is contributing to its higher than industry P/S, given the industry is set to shrink even more. Right now shareholders are comfortable with the P/S as they are quite confident revenue aren't under any additional threat. We still remain cautious about the company's ability to stay its recent course and avoid revenues slipping in line with the industry. At least if the company's outlook remains more positive than its peers, it is unlikely that the share price will experience a significant decline in the near future.

Having said that, be aware Company K Partners is showing 3 warning signs in our investment analysis, and 1 of those is significant.

If these risks are making you reconsider your opinion on Company K Partners, 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.