JOONGANG ADVANCED MATERIALS Co., Ltd's (KOSDAQ:051980) Shares Climb 37% But Its Business Is Yet to Catch Up

Despite an already strong run, JOONGANG ADVANCED MATERIALS Co., Ltd (KOSDAQ:051980) shares have been powering on, with a gain of 37% in the last thirty days. The last month tops off a massive increase of 120% in the last year.

Following the firm bounce in price, you could be forgiven for thinking JOONGANG ADVANCED MATERIALS is a stock to steer clear of with a price-to-sales ratios (or "P/S") of 12.1x, considering almost half the companies in Korea's Communications industry have P/S ratios below 1x. However, the P/S might be quite high for a reason and it requires further investigation to determine if it's justified.

Check out our latest analysis for JOONGANG ADVANCED MATERIALS

How Has JOONGANG ADVANCED MATERIALS Performed Recently?

With revenue growth that's exceedingly strong of late, JOONGANG ADVANCED MATERIALS has been doing very well. It seems that many are expecting the strong revenue performance to beat most other companies over the coming period, which has increased investors’ willingness to pay up for the stock. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

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

Is There Enough Revenue Growth Forecasted For JOONGANG ADVANCED MATERIALS?

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.

If we review the last year of revenue growth, the company posted a terrific increase of 65%. The strong recent performance means it was also able to grow revenue by 95% in total over the last three years. Accordingly, shareholders would have definitely welcomed those medium-term rates of revenue growth.

It's interesting to note that the rest of the industry is similarly expected to grow by 25% over the next year, which is fairly even with the company's recent medium-term annualised growth rates.

With this information, we find it interesting that JOONGANG ADVANCED MATERIALS is trading at a high P/S compared to the industry. Apparently many investors in the company are more bullish than recent times would indicate and aren't willing to let go of their stock right now. Although, additional gains will be difficult to achieve as a continuation of recent revenue trends would weigh down the share price eventually.

What We Can Learn From JOONGANG ADVANCED MATERIALS' P/S?

JOONGANG ADVANCED MATERIALS' P/S has grown nicely over the last month thanks to a handy boost in the share price. While the price-to-sales ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of revenue expectations.

We didn't expect to see JOONGANG ADVANCED MATERIALS trade at such a high P/S considering its last three-year revenue growth has only been on par with the rest of the industry. When we see average revenue with industry-like growth combined with a high P/S, we suspect the share price is at risk of declining, bringing the P/S back in line with the industry too. Unless the recent medium-term conditions improve, it's challenging to accept these prices as being reasonable.

You should always think about risks. Case in point, we've spotted 3 warning signs for JOONGANG ADVANCED MATERIALS you should be aware of.

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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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.