What Coreana Cosmetics Co.,Ltd.'s (KOSDAQ:027050) 37% Share Price Gain Is Not Telling You

Coreana Cosmetics Co.,Ltd. (KOSDAQ:027050) shareholders have had their patience rewarded with a 37% share price jump in the last month. The bad news is that even after the stocks recovery in the last 30 days, shareholders are still underwater by about 2.1% over the last year.

Although its price has surged higher, it's still not a stretch to say that Coreana CosmeticsLtd's price-to-sales (or "P/S") ratio of 1.2x right now seems quite "middle-of-the-road" compared to the Personal Products industry in Korea, where the median P/S ratio is around 1x. Although, it's not wise to simply ignore the P/S without explanation as investors may be disregarding a distinct opportunity or a costly mistake.

Trump has pledged to "unleash" American oil and gas and these 15 US stocks have developments that are poised to benefit.

View our latest analysis for Coreana CosmeticsLtd

What Does Coreana CosmeticsLtd's Recent Performance Look Like?

As an illustration, revenue has deteriorated at Coreana CosmeticsLtd over the last year, which is not ideal at all. It might be that many expect the company to put the disappointing revenue performance behind them over the coming period, which has kept the P/S from falling. If not, then existing shareholders may be a little nervous about the viability of the share price.

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 Coreana CosmeticsLtd's earnings, revenue and cash flow.

How Is Coreana CosmeticsLtd's Revenue Growth Trending?

The only time you'd be comfortable seeing a P/S like Coreana CosmeticsLtd's is when the company's growth is tracking the industry closely.

Retrospectively, the last year delivered a frustrating 7.4% decrease to the company's top line. As a result, revenue from three years ago have also fallen 5.7% overall. So unfortunately, we have to acknowledge that the company has not done a great job of growing revenue over that time.

Weighing that medium-term revenue trajectory against the broader industry's one-year forecast for expansion of 18% shows it's an unpleasant look.

With this in mind, we find it worrying that Coreana CosmeticsLtd's P/S exceeds that of its industry peers. Apparently many investors in the company are way less bearish than recent times would indicate and aren't willing to let go of their stock right now. 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 the recent negative growth rates.

The Final Word

Coreana CosmeticsLtd's stock has a lot of momentum behind it lately, which has brought its P/S level with the rest of the industry. 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.

Our look at Coreana CosmeticsLtd revealed its shrinking revenues over the medium-term haven't impacted the P/S as much as we anticipated, given the industry is set to grow. Even though it matches the industry, we're uncomfortable with the current P/S ratio, as this dismal revenue performance is unlikely to support a more positive sentiment for long. If recent medium-term revenue trends continue, it will place shareholders' investments at risk and potential investors in danger of paying an unnecessary premium.

Don't forget that there may be other risks. For instance, we've identified 3 warning signs for Coreana CosmeticsLtd that 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).

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.