There's Reason For Concern Over CROWNHAITAI Holdings Co.,Ltd.'s (KRX:005740) Massive 31% Price Jump

The CROWNHAITAI Holdings Co.,Ltd. (KRX:005740) share price has done very well over the last month, posting an excellent gain of 31%. The last 30 days bring the annual gain to a very sharp 25%.

Even after such a large jump in price, you could still be forgiven for feeling indifferent about CROWNHAITAI HoldingsLtd's P/S ratio of 0.1x, since the median price-to-sales (or "P/S") ratio for the Food industry in Korea is also close to 0.3x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/S.

Check out our latest analysis for CROWNHAITAI HoldingsLtd

What Does CROWNHAITAI HoldingsLtd's Recent Performance Look Like?

The recent revenue growth at CROWNHAITAI HoldingsLtd would have to be considered satisfactory if not spectacular. Perhaps the expectation moving forward is that the revenue growth will track in line with the wider industry for the near term, which has kept the P/S subdued. If you like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's not quite in favour.

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 CROWNHAITAI HoldingsLtd's earnings, revenue and cash flow.

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

In order to justify its P/S ratio, CROWNHAITAI HoldingsLtd would need to produce growth that's similar to the industry.

Retrospectively, the last year delivered a decent 5.2% gain to the company's revenues. The solid recent performance means it was also able to grow revenue by 13% in total over the last three years. Accordingly, shareholders would have probably been satisfied with the medium-term rates of revenue growth.

Comparing the recent medium-term revenue trends against the industry's one-year growth forecast of 8.9% shows it's noticeably less attractive.

With this information, we find it interesting that CROWNHAITAI HoldingsLtd is trading at a fairly similar P/S compared to the industry. It seems most investors are ignoring the fairly limited recent growth rates and are willing to pay up for exposure to the stock. They may be setting themselves up for future disappointment if the P/S falls to levels more in line with recent growth rates.

The Final Word

Its shares have lifted substantially and now CROWNHAITAI HoldingsLtd's P/S is back within range of the industry median. 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.

Our examination of CROWNHAITAI HoldingsLtd revealed its poor three-year revenue trends aren't resulting in a lower P/S as per our expectations, given they look worse than current industry outlook. Right now we are uncomfortable with the P/S as this revenue performance isn't likely to support a more positive sentiment for long. Unless the recent medium-term conditions improve, it's hard to accept the current share price as fair value.

You should always think about risks. Case in point, we've spotted 4 warning signs for CROWNHAITAI HoldingsLtd you should be aware of.

If you're unsure about the strength of CROWNHAITAI HoldingsLtd's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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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.