Revenues Not Telling The Story For Young Poong Paper Mfg Co.,Ltd. (KRX:006740) After Shares Rise 31%

Young Poong Paper Mfg Co.,Ltd. (KRX:006740) shares have had a really impressive month, gaining 31% after a shaky period beforehand. But the last month did very little to improve the 96% share price decline over the last year.

After such a large jump in price, given close to half the companies operating in Korea's Forestry industry have price-to-sales ratios (or "P/S") below 0.2x, you may consider Young Poong Paper MfgLtd as a stock to potentially avoid with its 0.9x P/S ratio. However, the P/S might be high for a reason and it requires further investigation to determine if it's justified.

Check out our latest analysis for Young Poong Paper MfgLtd

What Does Young Poong Paper MfgLtd's Recent Performance Look Like?

For example, consider that Young Poong Paper MfgLtd's financial performance has been poor lately as its revenue has been in decline. One possibility is that the P/S is high because investors think the company will still do enough to outperform the broader industry in the near future. If not, then existing shareholders may be quite nervous about the viability of the share price.

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

Is There Enough Revenue Growth Forecasted For Young Poong Paper MfgLtd?

There's an inherent assumption that a company should outperform the industry for P/S ratios like Young Poong Paper MfgLtd's to be considered reasonable.

Retrospectively, the last year delivered a frustrating 4.4% decrease to the company's top line. This means it has also seen a slide in revenue over the longer-term as revenue is down 24% in total over the last three years. Accordingly, shareholders would have felt downbeat about the medium-term rates of revenue growth.

Weighing that medium-term revenue trajectory against the broader industry's one-year forecast for expansion of 11% shows it's an unpleasant look.

In light of this, it's alarming that Young Poong Paper MfgLtd's P/S sits above the majority of other companies. Apparently many investors in the company are way more bullish than recent times would indicate and aren't willing to let go of their stock at any price. Only the boldest would assume these prices are sustainable as a continuation of recent revenue trends is likely to weigh heavily on the share price eventually.

The Bottom Line On Young Poong Paper MfgLtd's P/S

Young Poong Paper MfgLtd shares have taken a big step in a northerly direction, but its P/S is elevated as a result. Using the price-to-sales ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

Our examination of Young Poong Paper MfgLtd revealed its shrinking revenue over the medium-term isn't resulting in a P/S as low as we expected, given the industry is set to grow. With a revenue decline on investors' minds, the likelihood of a souring sentiment is quite high which could send the P/S back in line with what we'd expect. If recent medium-term revenue trends continue, it will place shareholders' investments at significant risk and potential investors in danger of paying an excessive premium.

Don't forget that there may be other risks. For instance, we've identified 5 warning signs for Young Poong Paper MfgLtd (3 shouldn't be ignored) 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.