SG Co.,Ltd's (KOSDAQ:255220) 154% Jump Shows Its Popularity With Investors

SG Co.,Ltd (KOSDAQ:255220) shares have had a really impressive month, gaining 154% after a shaky period beforehand. The annual gain comes to 173% following the latest surge, making investors sit up and take notice.

Since its price has surged higher, you could be forgiven for thinking SGLtd is a stock not worth researching with a price-to-sales ratios (or "P/S") of 2.1x, considering almost half the companies in Korea's Basic Materials industry have P/S ratios below 0.4x. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the elevated P/S.

View our latest analysis for SGLtd

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

SGLtd hasn't been tracking well recently as its declining revenue compares poorly to other companies, which have seen some growth in their revenues on average. One possibility is that the P/S ratio is high because investors think this poor revenue performance will turn the corner. If not, then existing shareholders may be extremely nervous about the viability of the share price.

Keen to find out how analysts think SGLtd's future stacks up against the industry? In that case, our free report is a great place to start.

Is There Enough Revenue Growth Forecasted For SGLtd?

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

Taking a look back first, the company's revenue growth last year wasn't something to get excited about as it posted a disappointing decline of 7.7%. Regardless, revenue has managed to lift by a handy 27% in aggregate from three years ago, thanks to the earlier period of growth. Although it's been a bumpy ride, it's still fair to say the revenue growth recently has been mostly respectable for the company.

Turning to the outlook, the next year should demonstrate the company's robustness, generating growth of 96% as estimated by the sole analyst watching the company. With the rest of the industry predicted to shrink by 2.9%, that would be a fantastic result.

With this in consideration, we understand why SGLtd's P/S is a cut above its industry peers. At this time, shareholders aren't keen to offload something that is potentially eyeing a much more prosperous future.

What We Can Learn From SGLtd's P/S?

SGLtd's P/S is on the rise since its shares have risen strongly. 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.

As we anticipated, our review of SGLtd's analyst forecasts shows that the company's better revenue forecast compared to a turbulent industry is a significant contributor to its high price-to-sales ratio. Right now shareholders are comfortable with the P/S as they are quite confident future revenues aren't under threat. Questions could still raised over whether this level of outperformance can continue in the context of a a tumultuous industry climate. Assuming the company's outlook remains unchanged, the share price is likely to be supported by prospective buyers.

It is also worth noting that we have found 3 warning signs for SGLtd (2 are a bit concerning!) that you need to take into consideration.

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.

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