Optimistic Investors Push Hankuk Carbon Co., Ltd. (KRX:017960) Shares Up 27% But Growth Is Lacking

Hankuk Carbon Co., Ltd. (KRX:017960) shares have continued their recent momentum with a 27% gain in the last month alone. The last month tops off a massive increase of 143% in the last year.

Since its price has surged higher, when almost half of the companies in Korea's Chemicals industry have price-to-sales ratios (or "P/S") below 0.7x, you may consider Hankuk Carbon as a stock probably not worth researching with its 1.8x P/S ratio. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's as high as it is.

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Check out our latest analysis for Hankuk Carbon

What Does Hankuk Carbon's Recent Performance Look Like?

Hankuk Carbon certainly has been doing a good job lately as it's been growing revenue more than most other companies. It seems the market expects this form will continue into the future, hence the elevated P/S ratio. However, if this isn't the case, investors might get caught out paying too much for the stock.

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Hankuk Carbon.

What Are Revenue Growth Metrics Telling Us About The High P/S?

Hankuk Carbon's P/S ratio would be typical for a company that's expected to deliver solid growth, and importantly, perform better than the industry.

Taking a look back first, we see that the company grew revenue by an impressive 16% last year. The strong recent performance means it was also able to grow revenue by 128% in total over the last three years. Accordingly, shareholders would have definitely welcomed those medium-term rates of revenue growth.

Shifting to the future, estimates from the five analysts covering the company suggest revenue should grow by 4.1% each year over the next three years. With the industry predicted to deliver 8.1% growth per year, the company is positioned for a weaker revenue result.

With this in consideration, we believe it doesn't make sense that Hankuk Carbon's P/S is outpacing its industry peers. It seems most investors are hoping for a turnaround in the company's business prospects, but the analyst cohort is not so confident this will happen. There's a good chance these shareholders are setting themselves up for future disappointment if the P/S falls to levels more in line with the growth outlook.

What We Can Learn From Hankuk Carbon's P/S?

Hankuk Carbon'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.

Despite analysts forecasting some poorer-than-industry revenue growth figures for Hankuk Carbon, this doesn't appear to be impacting the P/S in the slightest. Right now we aren't comfortable with the high P/S as the predicted future revenues aren't likely to support such positive sentiment for long. Unless these conditions improve markedly, it's very challenging to accept these prices as being reasonable.

It is also worth noting that we have found 1 warning sign for Hankuk Carbon that you need to take into consideration.

If strong companies turning a profit tickle your fancy, then you'll want to check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).

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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.