WIDER PLANET Inc.'s (KOSDAQ:321820) Shares Climb 26% But Its Business Is Yet to Catch Up

WIDER PLANET Inc. (KOSDAQ:321820) shares have continued their recent momentum with a 26% gain in the last month alone. The last month tops off a massive increase of 163% in the last year.

After such a large jump in price, you could be forgiven for thinking WIDER PLANET is a stock to steer clear of with a price-to-sales ratios (or "P/S") of 7.8x, considering almost half the companies in Korea's Media industry have P/S ratios below 1.6x. However, the P/S might be quite high for a reason and it requires further investigation to determine if it's justified.

See our latest analysis for WIDER PLANET

What Does WIDER PLANET's P/S Mean For Shareholders?

As an illustration, revenue has deteriorated at WIDER PLANET over the last year, which is not ideal at all. 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. However, if this isn't the case, investors might get caught out paying too much for the stock.

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

How Is WIDER PLANET's Revenue Growth Trending?

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

In reviewing the last year of financials, we were disheartened to see the company's revenues fell to the tune of 12%. This has erased any of its gains during the last three years, with practically no change in revenue being achieved in total. So it appears to us that the company has had a mixed result in terms of growing revenue over that time.

Comparing the recent medium-term revenue trends against the industry's one-year growth forecast of 4.8% shows it's noticeably less attractive.

With this information, we find it concerning that WIDER PLANET is trading at a P/S higher than the industry. It seems most investors are ignoring the fairly limited recent growth rates and are hoping for a turnaround in the company's business prospects. There's a good chance existing shareholders are setting themselves up for future disappointment if the P/S falls to levels more in line with recent growth rates.

What Does WIDER PLANET's P/S Mean For Investors?

Shares in WIDER PLANET have seen a strong upwards swing lately, which has really helped boost its P/S figure. 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.

The fact that WIDER PLANET currently trades on a higher P/S relative to the industry is an oddity, since its recent three-year growth is lower than the wider industry forecast. Right now we aren't comfortable with the high P/S as this revenue performance isn't likely to support such positive sentiment for long. Unless the recent medium-term conditions improve markedly, it's very challenging to accept these the share price as being reasonable.

And what about other risks? Every company has them, and we've spotted 3 warning signs for WIDER PLANET you should know about.

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.