ASIA SEED Co.,Ltd.'s (KOSDAQ:154030) Shares Climb 37% But Its Business Is Yet to Catch Up

ASIA SEED Co.,Ltd. (KOSDAQ:154030) shareholders have had their patience rewarded with a 37% share price jump in the last month. But the gains over the last month weren't enough to make shareholders whole, as the share price is still down 3.9% in the last twelve months.

After such a large jump in price, when almost half of the companies in Korea's Food industry have price-to-sales ratios (or "P/S") below 0.3x, you may consider ASIA SEEDLtd as a stock probably not worth researching with its 1.2x 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 ASIA SEEDLtd

What Does ASIA SEEDLtd's Recent Performance Look Like?

We'd have to say that with no tangible growth over the last year, ASIA SEEDLtd's revenue has been unimpressive. One possibility is that the P/S is high because investors think the benign revenue growth will improve to outperform the broader industry in the near future. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

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

Is There Enough Revenue Growth Forecasted For ASIA SEEDLtd?

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

Retrospectively, the last year delivered virtually the same number to the company's top line as the year before. That's essentially a continuation of what we've seen over the last three years, as its revenue growth has been virtually non-existent for that entire period. Accordingly, shareholders probably wouldn't have been satisfied with the complete absence of medium-term growth.

This is in contrast to the rest of the industry, which is expected to grow by 11% over the next year, materially higher than the company's recent medium-term annualised growth rates.

With this information, we find it concerning that ASIA SEEDLtd is trading at a P/S higher than the industry. It seems most investors are ignoring the fairly limited recent growth rates and are hoping for a turnaround in the company's business prospects. There's a good chance existing shareholders are setting themselves up for future disappointment if the P/S falls to levels more in line with recent growth rates.

The Key Takeaway

ASIA SEEDLtd shares have taken a big step in a northerly direction, but its P/S is elevated as a result. 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 ASIA SEEDLtd 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 see slower than industry revenue growth but an elevated P/S, there's considerable risk of the share price declining, sending the P/S lower. Unless the recent medium-term conditions improve markedly, it's very challenging to accept these the share price as being reasonable.

Having said that, be aware ASIA SEEDLtd is showing 4 warning signs in our investment analysis, and 1 of those makes us a bit uncomfortable.

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.