Market Participants Recognise Synopex Inc.'s (KOSDAQ:025320) Revenues Pushing Shares 55% Higher

Synopex Inc. (KOSDAQ:025320) shares have continued their recent momentum with a 55% gain in the last month alone. This latest share price bounce rounds out a remarkable 325% gain over the last twelve months.

After such a large jump in price, given around half the companies in Korea's Electronic industry have price-to-sales ratios (or "P/S") below 1x, you may consider Synopex as a stock to avoid entirely with its 3.7x 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 Synopex

How Synopex Has Been Performing

Synopex hasn't been tracking well recently as its declining revenue compares poorly to other companies, which have seen some growth in their revenues on average. One possibility is that the P/S ratio is high because investors think this poor revenue performance will turn the corner. However, if this isn't the case, investors might get caught out paying too much for the stock.

Keen to find out how analysts think Synopex's future stacks up against the industry? In that case, our free report is a great place to start.

What Are Revenue Growth Metrics Telling Us About The High P/S?

In order to justify its P/S ratio, Synopex would need to produce outstanding growth that's well in excess of the industry.

Retrospectively, the last year delivered a frustrating 1.3% decrease to the company's top line. That put a dampener on the good run it was having over the longer-term as its three-year revenue growth is still a noteworthy 16% in total. So we can start by confirming that the company has generally done a good job of growing revenue over that time, even though it had some hiccups along the way.

Turning to the outlook, the next year should generate growth of 17% as estimated by the lone analyst watching the company. That's shaping up to be materially higher than the 13% growth forecast for the broader industry.

With this in mind, it's not hard to understand why Synopex's P/S is high relative to its industry peers. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.

What Does Synopex's P/S Mean For Investors?

Shares in Synopex have seen a strong upwards swing lately, which has really helped boost its P/S figure. 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.

We've established that Synopex maintains its high P/S on the strength of its forecasted revenue growth being higher than the the rest of the Electronic industry, as expected. Right now shareholders are comfortable with the P/S as they are quite confident future revenues aren't under threat. Unless these conditions change, they will continue to provide strong support to the share price.

You need to take note of risks, for example - Synopex has 3 warning signs (and 1 which makes us a bit uncomfortable) 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.