Further Upside For KidariStudio, Inc. (KRX:020120) Shares Could Introduce Price Risks After 28% Bounce

The KidariStudio, Inc. (KRX:020120) share price has done very well over the last month, posting an excellent gain of 28%. Unfortunately, the gains of the last month did little to right the losses of the last year with the stock still down 12% over that time.

In spite of the firm bounce in price, considering about half the companies operating in Korea's Interactive Media and Services industry have price-to-sales ratios (or "P/S") above 3.9x, you may still consider KidariStudio as an great investment opportunity with its 0.7x P/S ratio. However, the P/S might be quite low for a reason and it requires further investigation to determine if it's justified.

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View our latest analysis for KidariStudio

How Has KidariStudio Performed Recently?

Revenue has risen firmly for KidariStudio recently, which is pleasing to see. It might be that many expect the respectable revenue performance to degrade substantially, which has repressed the P/S. If that doesn't eventuate, then existing shareholders have reason to be optimistic about the future direction of the share price.

We don't have analyst forecasts, but you can see how recent trends are setting up the company for the future by checking out our free report on KidariStudio's earnings, revenue and cash flow.

How Is KidariStudio's Revenue Growth Trending?

There's an inherent assumption that a company should far underperform the industry for P/S ratios like KidariStudio's to be considered reasonable.

Retrospectively, the last year delivered a decent 15% gain to the company's revenues. This was backed up an excellent period prior to see revenue up by 45% in total over the last three years. Therefore, it's fair to say the revenue growth recently has been superb for the company.

Comparing that to the industry, which is only predicted to deliver 9.1% growth in the next 12 months, the company's momentum is stronger based on recent medium-term annualised revenue results.

In light of this, it's peculiar that KidariStudio's P/S sits below the majority of other companies. It looks like most investors are not convinced the company can maintain its recent growth rates.

The Key Takeaway

Shares in KidariStudio have risen appreciably however, its P/S is still subdued. We'd say the price-to-sales ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

We're very surprised to see KidariStudio currently trading on a much lower than expected P/S since its recent three-year growth is higher than the wider industry forecast. When we see robust revenue growth that outpaces the industry, we presume that there are notable underlying risks to the company's future performance, which is exerting downward pressure on the P/S ratio. While recent revenue trends over the past medium-term suggest that the risk of a price decline is low, investors appear to perceive a likelihood of revenue fluctuations in the future.

We don't want to rain on the parade too much, but we did also find 2 warning signs for KidariStudio (1 is a bit concerning!) that you need to be mindful of.

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.