D&C Media Co.,Ltd.'s (KOSDAQ:263720) P/S Is Still On The Mark Following 53% Share Price Bounce

D&C Media Co.,Ltd. (KOSDAQ:263720) shares have had a really impressive month, gaining 53% after a shaky period beforehand. Looking back a bit further, it's encouraging to see the stock is up 94% in the last year.

Since its price has surged higher, you could be forgiven for thinking D&C MediaLtd is a stock to steer clear of with a price-to-sales ratios (or "P/S") of 7.1x, considering almost half the companies in Korea's Media industry have P/S ratios below 1.5x. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's so lofty.

Check out our latest analysis for D&C MediaLtd

What Does D&C MediaLtd's Recent Performance Look Like?

D&C MediaLtd 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. 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 D&C MediaLtd.

Do Revenue Forecasts Match The High P/S Ratio?

The only time you'd be truly comfortable seeing a P/S as steep as D&C MediaLtd's is when the company's growth is on track to outshine the industry decidedly.

Retrospectively, the last year delivered a frustrating 1.4% decrease to the company's top line. This has erased any of its gains during the last three years, with practically no change in revenue being achieved in total. Accordingly, shareholders probably wouldn't have been overly satisfied with the unstable medium-term growth rates.

Looking ahead now, revenue is anticipated to climb by 17% per year during the coming three years according to the dual analysts following the company. That's shaping up to be materially higher than the 10% per annum growth forecast for the broader industry.

With this information, we can see why D&C MediaLtd is trading at such a high P/S compared to the industry. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.

The Key Takeaway

Shares in D&C MediaLtd have seen a strong upwards swing lately, which has really helped boost its P/S figure. 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.

We've established that D&C MediaLtd maintains its high P/S on the strength of its forecasted revenue growth being higher than the the rest of the Media industry, as expected. At this stage investors feel the potential for a deterioration in revenues is quite remote, justifying the elevated P/S ratio. It's hard to see the share price falling strongly in the near future under these circumstances.

And what about other risks? Every company has them, and we've spotted 3 warning signs for D&C MediaLtd (of which 1 shouldn't be ignored!) you should know about.

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.