Revenues Not Telling The Story For JOONGANG ADVANCED MATERIALS Co., Ltd (KOSDAQ:051980) After Shares Rise 193%

JOONGANG ADVANCED MATERIALS Co., Ltd (KOSDAQ:051980) shares have continued their recent momentum with a 193% gain in the last month alone. The last month tops off a massive increase of 207% in the last year.

Following the firm bounce in price, given around half the companies in Korea's Communications industry have price-to-sales ratios (or "P/S") below 1.1x, you may consider JOONGANG ADVANCED MATERIALS as a stock to avoid entirely with its 49.4x P/S ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly elevated P/S.

See our latest analysis for JOONGANG ADVANCED MATERIALS

How Has JOONGANG ADVANCED MATERIALS Performed Recently?

For instance, JOONGANG ADVANCED MATERIALS' receding revenue in recent times would have to be some food for thought. One possibility is that the P/S is high because investors think the company will still do enough to outperform the broader industry in the near future. If not, then existing shareholders may be quite nervous about the viability of the share price.

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.

Is There Enough Revenue Growth Forecasted For JOONGANG ADVANCED MATERIALS?

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

In reviewing the last year of financials, we were disheartened to see the company's revenues fell to the tune of 1.9%. Even so, admirably revenue has lifted 165% 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.

Comparing the recent medium-term revenue trends against the industry's one-year growth forecast of 51% shows it's noticeably less attractive.

With this information, we find it concerning that JOONGANG ADVANCED MATERIALS is trading at a P/S higher than the industry. It seems most investors are ignoring the fairly limited recent growth rates and are hoping for a turnaround in the company's business prospects. 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 Key Takeaway

The strong share price surge has lead to JOONGANG ADVANCED MATERIALS' P/S soaring as well. 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.

The fact that JOONGANG ADVANCED MATERIALS currently trades on a higher P/S relative to the industry is an oddity, since its recent three-year growth is lower than the wider industry forecast. Right now we aren't comfortable with the high P/S as this revenue performance isn't likely to support such positive sentiment for long. Unless the recent medium-term conditions improve markedly, it's very challenging to accept these the share price as being reasonable.

You need to take note of risks, for example - JOONGANG ADVANCED MATERIALS has 4 warning signs (and 3 which shouldn't be ignored) we think you should know about.

If these risks are making you reconsider your opinion on JOONGANG ADVANCED MATERIALS, explore our interactive list of high quality stocks to get an idea of what else is out there.

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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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com