Revenues Not Telling The Story For Hung -Gu Oil Ltd (KOSDAQ:024060) After Shares Rise 28%

Despite an already strong run, Hung -Gu Oil Ltd (KOSDAQ:024060) shares have been powering on, with a gain of 28% in the last thirty days. The last month tops off a massive increase of 177% in the last year.

After such a large jump in price, you could be forgiven for thinking Hung -Gu Oil is a stock not worth researching with a price-to-sales ratios (or "P/S") of 2.2x, considering almost half the companies in Korea's Oil and Gas industry have P/S ratios below 0.3x. 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 Hung -Gu Oil

What Does Hung -Gu Oil's P/S Mean For Shareholders?

As an illustration, revenue has deteriorated at Hung -Gu Oil over the last year, which is not ideal at all. 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. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

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 Hung -Gu Oil's earnings, revenue and cash flow.

How Is Hung -Gu Oil's Revenue Growth Trending?

The only time you'd be truly comfortable seeing a P/S as high as Hung -Gu Oil's is when the company's growth is on track to outshine the industry.

In reviewing the last year of financials, we were disheartened to see the company's revenues fell to the tune of 7.4%. At least revenue has managed not to go completely backwards from three years ago in aggregate, thanks to the earlier period of growth. So it appears to us that the company has had a mixed result in terms of growing revenue over that time.

Comparing that to the industry, which is predicted to deliver 2.8% growth in the next 12 months, the company's momentum is weaker, based on recent medium-term annualised revenue results.

In light of this, it's alarming that Hung -Gu Oil's P/S sits above the majority of other companies. It seems most investors are ignoring the fairly limited recent growth rates and are hoping for a turnaround in the company's business prospects. 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 Hung -Gu Oil's P/S

Hung -Gu Oil's P/S is on the rise since its shares have risen strongly. It's argued the price-to-sales ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

The fact that Hung -Gu Oil 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. Right now we aren't comfortable with the high P/S as this revenue performance isn't likely to support such positive sentiment for long. Unless the recent medium-term conditions improve markedly, it's very challenging to accept these the share price as being reasonable.

You should always think about risks. Case in point, we've spotted 3 warning signs for Hung -Gu Oil you should be aware of, and 2 of them make us uncomfortable.

If companies with solid past earnings growth is up your alley, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

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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.