Cosmo Chemical Co., Ltd. (KRX:005420) Stock Rockets 25% But Many Are Still Ignoring The Company

Despite an already strong run, Cosmo Chemical Co., Ltd. (KRX:005420) shares have been powering on, with a gain of 25% in the last thirty days. While recent buyers may be laughing, long-term holders might not be as pleased since the recent gain only brings the stock back to where it started a year ago.

Although its price has surged higher, it's still not a stretch to say that Cosmo Chemical's price-to-sales (or "P/S") ratio of 1x right now seems quite "middle-of-the-road" compared to the Chemicals industry in Korea, where the median P/S ratio is around 0.7x. While this might not raise any eyebrows, if the P/S ratio is not justified investors could be missing out on a potential opportunity or ignoring looming disappointment.

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View our latest analysis for Cosmo Chemical

What Does Cosmo Chemical's P/S Mean For Shareholders?

The recent revenue growth at Cosmo Chemical would have to be considered satisfactory if not spectacular. One possibility is that the P/S is moderate because investors think this good revenue growth might only be parallel to the broader industry in the near future. Those who are bullish on Cosmo Chemical will be hoping that this isn't the case, so that they can pick up the stock at a lower valuation.

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 Cosmo Chemical's earnings, revenue and cash flow.

Is There Some Revenue Growth Forecasted For Cosmo Chemical?

Cosmo Chemical'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.

If we review the last year of revenue growth, the company posted a worthy increase of 3.7%. This was backed up an excellent period prior to see revenue up by 40% in total over the last three years. So we can start by confirming that the company has done a great job of growing revenues over that time.

When compared to the industry's one-year growth forecast of 8.0%, the most recent medium-term revenue trajectory is noticeably more alluring

With this information, we find it interesting that Cosmo Chemical is trading at a fairly similar P/S compared to the industry. Apparently some shareholders believe the recent performance is at its limits and have been accepting lower selling prices.

The Bottom Line On Cosmo Chemical's P/S

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

To our surprise, Cosmo Chemical revealed its three-year revenue trends aren't contributing to its P/S as much as we would have predicted, given they look better than current industry expectations. It'd be fair to assume that potential risks the company faces could be the contributing factor to the lower than expected P/S. It appears some are indeed anticipating revenue instability, because the persistence of these recent medium-term conditions would normally provide a boost to the share price.

Before you take the next step, you should know about the 2 warning signs for Cosmo Chemical that we have uncovered.

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).

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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.