Even With A 28% Surge, Cautious Investors Are Not Rewarding Kumkang Kind Co., Ltd.'s (KRX:014280) Performance Completely

Kumkang Kind Co., Ltd. (KRX:014280) shareholders have had their patience rewarded with a 28% share price jump in the last month. Looking back a bit further, it's encouraging to see the stock is up 53% in the last year.

In spite of the firm bounce in price, there still wouldn't be many who think Kumkang Kind's price-to-sales (or "P/S") ratio of 0.2x is worth a mention when the median P/S in Korea's Metals and Mining industry is similar at about 0.3x. 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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Check out our latest analysis for Kumkang Kind

What Does Kumkang Kind's Recent Performance Look Like?

As an illustration, revenue has deteriorated at Kumkang Kind 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.

Although there are no analyst estimates available for Kumkang Kind, take a look at this free data-rich visualisation to see how the company stacks up on earnings, revenue and cash flow.

Do Revenue Forecasts Match The P/S Ratio?

In order to justify its P/S ratio, Kumkang Kind would need to produce growth that's similar to the industry.

Retrospectively, the last year delivered a frustrating 2.2% decrease to the company's top line. This has soured the latest three-year period, which nevertheless managed to deliver a decent 28% overall rise in revenue. Accordingly, while they would have preferred to keep the run going, shareholders would be roughly satisfied with the medium-term rates of revenue growth.

Comparing that to the industry, which is only predicted to deliver 4.3% growth in the next 12 months, the company's momentum is stronger based on recent medium-term annualised revenue results.

With this information, we find it interesting that Kumkang Kind 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.

What Does Kumkang Kind's P/S Mean For Investors?

Kumkang Kind 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 Kumkang Kind 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. At least the risk of a price drop looks to be subdued if recent medium-term revenue trends continue, but investors seem to think future revenue could see some volatility.

It is also worth noting that we have found 3 warning signs for Kumkang Kind that you need to take into consideration.

Of course, profitable companies with a history of great earnings growth are generally safer bets. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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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.