What INTEKPLUS Co., Ltd.'s (KOSDAQ:064290) 35% Share Price Gain Is Not Telling You

INTEKPLUS Co., Ltd. (KOSDAQ:064290) shares have had a really impressive month, gaining 35% after a shaky period beforehand. The annual gain comes to 131% following the latest surge, making investors sit up and take notice.

Since its price has surged higher, given around half the companies in Korea's Semiconductor industry have price-to-sales ratios (or "P/S") below 1.8x, you may consider INTEKPLUS as a stock to avoid entirely with its 6.1x P/S ratio. 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.

See our latest analysis for INTEKPLUS

How INTEKPLUS Has Been Performing

Recent times haven't been great for INTEKPLUS as its revenue has been falling quicker than most other companies. One possibility is that the P/S ratio is high because investors think the company will turn things around completely and accelerate past most others in the industry. If not, then existing shareholders may be very nervous about the viability of the share price.

If you'd like to see what analysts are forecasting going forward, you should check out our free report on INTEKPLUS.

How Is INTEKPLUS' Revenue Growth Trending?

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

Retrospectively, the last year delivered a frustrating 38% decrease to the company's top line. Even so, admirably revenue has lifted 37% in aggregate from three years ago, notwithstanding the last 12 months. Accordingly, while they would have preferred to keep the run going, shareholders would definitely welcome the medium-term rates of revenue growth.

Turning to the outlook, the next year should generate growth of 49% as estimated by the three analysts watching the company. Meanwhile, the rest of the industry is forecast to expand by 65%, which is noticeably more attractive.

In light of this, it's alarming that INTEKPLUS' P/S sits above the majority of other companies. It seems most investors are hoping for a turnaround in the company's business prospects, but the analyst cohort is not so confident this will happen. Only the boldest would assume these prices are sustainable as this level of revenue growth is likely to weigh heavily on the share price eventually.

The Bottom Line On INTEKPLUS' P/S

INTEKPLUS' P/S has grown nicely over the last month thanks to a handy boost in the share price. 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.

It comes as a surprise to see INTEKPLUS trade at such a high P/S given the revenue forecasts look less than stellar. Right now we aren't comfortable with the high P/S as the predicted future revenues aren't likely to support such positive sentiment for long. At these price levels, investors should remain cautious, particularly if things don't improve.

You always need to take note of risks, for example - INTEKPLUS has 1 warning sign we think you should be aware of.

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.