Optimistic Investors Push JS Link, Inc. (KOSDAQ:127120) Shares Up 34% But Growth Is Lacking

Explore JS Link's Fair Values from the Community and select yours

Despite an already strong run, JS Link, Inc. (KOSDAQ:127120) shares have been powering on, with a gain of 34% in the last thirty days. This latest share price bounce rounds out a remarkable 439% gain over the last twelve months.

Following the firm bounce in price, JS Link may be sending very bearish signals at the moment with a price-to-sales (or "P/S") ratio of 33.6x, since almost half of all companies in the Biotechs industry in Korea have P/S ratios under 15.3x and even P/S lower than 4x are not unusual. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly elevated P/S.

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Check out our latest analysis for JS Link

How JS Link Has Been Performing

As an illustration, revenue has deteriorated at JS Link over the last year, which is not ideal at all. It might be that many expect the company to still outplay most other companies over the coming period, which has kept the P/S from collapsing. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

Want the full picture on earnings, revenue and cash flow for the company? Then our free report on JS Link will help you shine a light on its historical performance.

How Is JS Link's Revenue Growth Trending?

JS Link's P/S ratio would be typical for a company that's expected to deliver very strong growth, and importantly, perform much better than the industry.

Retrospectively, the last year delivered a frustrating 32% decrease to the company's top line. As a result, revenue from three years ago have also fallen 38% overall. So unfortunately, we have to acknowledge that the company has not done a great job of growing revenue over that time.

In contrast to the company, the rest of the industry is expected to grow by 44% over the next year, which really puts the company's recent medium-term revenue decline into perspective.

In light of this, it's alarming that JS Link's P/S sits above the majority of other companies. Apparently many investors in the company are way more bullish than recent times would indicate and aren't willing to let go of their stock at any price. There's a very good chance existing shareholders are setting themselves up for future disappointment if the P/S falls to levels more in line with the recent negative growth rates.

What Does JS Link's P/S Mean For Investors?

The strong share price surge has lead to JS Link's P/S soaring as well. Generally, our preference is to limit the use of the price-to-sales ratio to establishing what the market thinks about the overall health of a company.

Our examination of JS Link revealed its shrinking revenue over the medium-term isn't resulting in a P/S as low as we expected, given the industry is set to grow. With a revenue decline on investors' minds, the likelihood of a souring sentiment is quite high which could send the P/S back in line with what we'd expect. Unless the the circumstances surrounding the recent medium-term improve, it wouldn't be wrong to expect a a difficult period ahead for the company's shareholders.

You need to take note of risks, for example - JS Link has 2 warning signs (and 1 which is a bit unpleasant) we think you should know about.

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.