Market Might Still Lack Some Conviction On dhSteel (KOSDAQ:021040) Even After 84% Share Price Boost

dhSteel (KOSDAQ:021040) shareholders have had their patience rewarded with a 84% share price jump in the last month. Not all shareholders will be feeling jubilant, since the share price is still down a very disappointing 17% in the last twelve months.

Even after such a large jump in price, it's still not a stretch to say that dhSteel's price-to-sales (or "P/S") ratio of 0.1x right now seems quite "middle-of-the-road" compared to the Metals and Mining industry in Korea, where the median P/S ratio is around 0.3x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/S.

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See our latest analysis for dhSteel

What Does dhSteel's P/S Mean For Shareholders?

For example, consider that dhSteel's financial performance has been poor lately as its revenue has been in decline. One possibility is that the P/S is moderate because investors think the company might still do enough to be in line with the broader industry in the near future. If you like the company, you'd at least be hoping this is the case so that you could potentially pick up some stock while it's not quite in favour.

Want the full picture on earnings, revenue and cash flow for the company? Then our free report on dhSteel will help you shine a light on its historical performance.

Do Revenue Forecasts Match The P/S Ratio?

dhSteel's P/S ratio would be typical for a company that's only expected to deliver moderate growth, and importantly, perform in line with the industry.

In reviewing the last year of financials, we were disheartened to see the company's revenues fell to the tune of 1.4%. Still, the latest three year period has seen an excellent 40% overall rise in revenue, in spite of its unsatisfying short-term performance. Although it's been a bumpy ride, it's still fair to say the revenue growth recently has been more than adequate for the company.

Comparing that recent medium-term revenue trajectory with the industry's one-year growth forecast of 2.9% shows it's noticeably more attractive.

In light of this, it's curious that dhSteel's P/S sits in line with the majority of other companies. Apparently some shareholders believe the recent performance is at its limits and have been accepting lower selling prices.

The Final Word

dhSteel appears to be back in favour with a solid price jump bringing its P/S back in line with other companies in the industry While the price-to-sales ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of revenue expectations.

We've established that dhSteel currently trades on a lower than expected P/S since its recent three-year growth is higher than the wider industry forecast. There could be some unobserved threats to revenue preventing the P/S ratio from matching this positive performance. While recent revenue trends over the past medium-term suggest that the risk of a price decline is low, investors appear to see the likelihood of revenue fluctuations in the future.

And what about other risks? Every company has them, and we've spotted 2 warning signs for dhSteel you should know about.

If you're unsure about the strength of dhSteel'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.