CHUNGDAMGLOBAL Co., Ltd.'s (KOSDAQ:362320) Shares Climb 56% But Its Business Is Yet to Catch Up
Despite an already strong run, CHUNGDAMGLOBAL Co., Ltd. (KOSDAQ:362320) shares have been powering on, with a gain of 56% in the last thirty days. Unfortunately, despite the strong performance over the last month, the full year gain of 2.7% isn't as attractive.
Although its price has surged higher, it's still not a stretch to say that CHUNGDAMGLOBAL's price-to-sales (or "P/S") ratio of 0.8x right now seems quite "middle-of-the-road" compared to the Retail Distributors industry in Korea, where the median P/S ratio is around 0.7x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/S.
Check out our latest analysis for CHUNGDAMGLOBAL
How Has CHUNGDAMGLOBAL Performed Recently?
CHUNGDAMGLOBAL could be doing better as its revenue has been going backwards lately while most other companies have been seeing positive revenue growth. It might be that many expect the dour revenue performance to strengthen positively, which has kept the P/S from falling. However, if this isn't the case, investors might get caught out paying too much for the stock.
Want the full picture on analyst estimates for the company? Then our free report on CHUNGDAMGLOBAL will help you uncover what's on the horizon.How Is CHUNGDAMGLOBAL's Revenue Growth Trending?
CHUNGDAMGLOBAL's P/S ratio would be typical for a company that's only expected to deliver moderate growth, and importantly, perform in line with the industry.
Taking a look back first, the company's revenue growth last year wasn't something to get excited about as it posted a disappointing decline of 3.2%. However, a few very strong years before that means that it was still able to grow revenue by an impressive 35% in total over the last three years. Although it's been a bumpy ride, it's still fair to say the revenue growth recently has been more than adequate for the company.
Shifting to the future, estimates from the sole analyst covering the company suggest revenue should grow by 8.9% over the next year. With the industry predicted to deliver 24% growth, the company is positioned for a weaker revenue result.
In light of this, it's curious that CHUNGDAMGLOBAL's P/S sits in line with the majority of other companies. Apparently many investors in the company are less bearish than analysts indicate and aren't willing to let go of their stock right now. These shareholders may be setting themselves up for future disappointment if the P/S falls to levels more in line with the growth outlook.
What Does CHUNGDAMGLOBAL's P/S Mean For Investors?
CHUNGDAMGLOBAL appears to be back in favour with a solid price jump bringing its P/S back in line with other companies in the industry 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.
When you consider that CHUNGDAMGLOBAL's revenue growth estimates are fairly muted compared to the broader industry, it's easy to see why we consider it unexpected to be trading at its current P/S ratio. At present, we aren't confident in the P/S as the predicted future revenues aren't likely to support a more positive sentiment for long. This places shareholders' investments at risk and potential investors in danger of paying an unnecessary premium.
It's always necessary to consider the ever-present spectre of investment risk. We've identified 1 warning sign with CHUNGDAMGLOBAL, and understanding should be part of your investment process.
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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