There's Reason For Concern Over OKins Electronics Co.,Ltd.'s (KOSDAQ:080580) Massive 35% Price Jump

OKins Electronics Co.,Ltd. (KOSDAQ:080580) shareholders would be excited to see that the share price has had a great month, posting a 35% gain and recovering from prior weakness. Longer-term shareholders would be thankful for the recovery in the share price since it's now virtually flat for the year after the recent bounce.

Even after such a large jump in price, there still wouldn't be many who think OKins ElectronicsLtd's price-to-sales (or "P/S") ratio of 1.7x is worth a mention when the median P/S in Korea's Semiconductor industry is similar at about 1.3x. While this might not raise any eyebrows, if the P/S ratio is not justified investors could be missing out on a potential opportunity or ignoring looming disappointment.

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Check out our latest analysis for OKins ElectronicsLtd

What Does OKins ElectronicsLtd's P/S Mean For Shareholders?

Revenue has risen firmly for OKins ElectronicsLtd recently, which is pleasing to see. It might be that many expect the respectable revenue performance to wane, which has kept the P/S from rising. Those who are bullish on OKins ElectronicsLtd will be hoping that this isn't the case, so that they can pick up the stock at a lower valuation.

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

How Is OKins ElectronicsLtd's Revenue Growth Trending?

There's an inherent assumption that a company should be matching the industry for P/S ratios like OKins ElectronicsLtd's to be considered reasonable.

Taking a look back first, we see that the company grew revenue by an impressive 16% last year. The latest three year period has also seen a 11% overall rise in revenue, aided extensively by its short-term performance. Accordingly, shareholders would have probably been satisfied with the medium-term rates of revenue growth.

Comparing the recent medium-term revenue trends against the industry's one-year growth forecast of 27% shows it's noticeably less attractive.

With this in mind, we find it intriguing that OKins ElectronicsLtd's P/S is comparable to that of its industry peers. It seems most investors are ignoring the fairly limited recent growth rates and are willing to pay up for exposure to the stock. They may be setting themselves up for future disappointment if the P/S falls to levels more in line with recent growth rates.

What We Can Learn From OKins ElectronicsLtd's P/S?

Its shares have lifted substantially and now OKins ElectronicsLtd's P/S is back within range of the industry median. 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.

Our examination of OKins ElectronicsLtd revealed its poor three-year revenue trends aren't resulting in a lower P/S as per our expectations, given they look worse than current industry outlook. When we see weak revenue with slower than industry growth, we suspect the share price is at risk of declining, bringing the P/S back in line with expectations. If recent medium-term revenue trends continue, the probability of a share price decline will become quite substantial, placing shareholders at risk.

Having said that, be aware OKins ElectronicsLtd is showing 2 warning signs in our investment analysis, and 1 of those is potentially serious.

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.