Revenues Tell The Story For Kakao Pay Corp. (KRX:377300) As Its Stock Soars 36%

Kakao Pay Corp. (KRX:377300) shareholders have had their patience rewarded with a 36% share price jump in the last month. Not all shareholders will be feeling jubilant, since the share price is still down a very disappointing 27% in the last twelve months.

Following the firm bounce in price, given around half the companies in Korea's Diversified Financial industry have price-to-sales ratios (or "P/S") below 0.7x, you may consider Kakao Pay as a stock to avoid entirely with its 6.2x 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.

View our latest analysis for Kakao Pay

What Does Kakao Pay's Recent Performance Look Like?

Recent times have been advantageous for Kakao Pay as its revenues have been rising faster than most other companies. The P/S is probably high because investors think this strong revenue performance will continue. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

Want the full picture on analyst estimates for the company? Then our free report on Kakao Pay will help you uncover what's on the horizon.

What Are Revenue Growth Metrics Telling Us About The High P/S?

The only time you'd be truly comfortable seeing a P/S as steep as Kakao Pay's is when the company's growth is on track to outshine the industry decidedly.

Taking a look back first, we see that the company grew revenue by an impressive 25% last year. Pleasingly, revenue has also lifted 71% in aggregate from three years ago, thanks to the last 12 months of growth. So we can start by confirming that the company has done a great job of growing revenue over that time.

Looking ahead now, revenue is anticipated to remain buoyant, climbing by 16% during the coming year according to the twelve analysts following the company. That would be an excellent outcome when the industry is expected to decline by 55%.

In light of this, it's understandable that Kakao Pay's P/S sits above the majority of other companies. Right now, investors are willing to pay more for a stock that is shaping up to buck the trend of the broader industry going backwards.

The Key Takeaway

The strong share price surge has lead to Kakao Pay's P/S soaring as well. Typically, we'd caution against reading too much into price-to-sales ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

As we suspected, our examination of Kakao Pay's analyst forecasts revealed that its superior revenue outlook against a shaky industry is contributing to its high P/S. Right now shareholders are comfortable with the P/S as they are quite confident future revenues aren't under threat. Questions could still raised over whether this level of outperformance can continue in the context of a a tumultuous industry climate. Although, if the company's prospects don't change they will continue to provide strong support to the share price.

You should always think about risks. Case in point, we've spotted 1 warning sign for Kakao Pay you should be aware of.

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.