JOONGANG ADVANCED MATERIALS Co., Ltd's (KOSDAQ:051980) Business Is Trailing The Industry But Its Shares Aren't

JOONGANG ADVANCED MATERIALS Co., Ltd's (KOSDAQ:051980) price-to-sales (or "P/S") ratio of 25.4x may look like a poor investment opportunity when you consider close to half the companies in the Communications industry in Korea have P/S ratios below 0.9x. However, the P/S might be quite high for a reason and it requires further investigation to determine if it's justified.

See our latest analysis for JOONGANG ADVANCED MATERIALS

How Has JOONGANG ADVANCED MATERIALS Performed Recently?

The revenue growth achieved at JOONGANG ADVANCED MATERIALS over the last year would be more than acceptable for most companies. Perhaps the market is expecting this decent revenue performance to beat out the industry over the near term, which has kept the P/S propped up. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

We don't have analyst forecasts, but you can see how recent trends are setting up the company for the future by checking out our free report on JOONGANG ADVANCED MATERIALS' earnings, revenue and cash flow.

How Is JOONGANG ADVANCED MATERIALS' Revenue Growth Trending?

The only time you'd be truly comfortable seeing a P/S as steep as JOONGANG ADVANCED MATERIALS' is when the company's growth is on track to outshine the industry decidedly.

Retrospectively, the last year delivered a decent 14% gain to the company's revenues. The latest three year period has also seen an excellent 55% overall rise in revenue, aided somewhat by its short-term performance. So we can start by confirming that the company has done a great job of growing revenues over that time.

This is in contrast to the rest of the industry, which is expected to grow by 37% over the next year, materially higher than the company's recent medium-term annualised growth rates.

With this information, we find it concerning that JOONGANG ADVANCED MATERIALS is trading at a P/S higher than the industry. 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 good chance existing shareholders are setting themselves up for future disappointment if the P/S falls to levels more in line with recent growth rates.

The Bottom Line On JOONGANG ADVANCED MATERIALS' P/S

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 JOONGANG ADVANCED MATERIALS revealed its poor three-year revenue trends aren't detracting from the P/S as much as we though, given they look worse than current industry expectations. When we observe slower-than-industry revenue growth alongside a high P/S ratio, we assume there to be a significant risk of the share price decreasing, which would result in a lower P/S ratio. If recent medium-term revenue trends continue, it will place shareholders' investments at significant risk and potential investors in danger of paying an excessive premium.

You need to take note of risks, for example - JOONGANG ADVANCED MATERIALS has 3 warning signs (and 1 which is potentially serious) we think you should know about.

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.