Daejoo Electronic Materials Co., Ltd. (KOSDAQ:078600) Looks Just Right With A 26% Price Jump

Daejoo Electronic Materials Co., Ltd. (KOSDAQ:078600) shareholders are no doubt pleased to see that the share price has bounced 26% in the last month, although it is still struggling to make up recently lost ground. The last 30 days bring the annual gain to a very sharp 31%.

After such a large jump in price, when almost half of the companies in Korea's Electronic industry have price-to-sales ratios (or "P/S") below 0.7x, you may consider Daejoo Electronic Materials as a stock not worth researching with its 7.3x P/S ratio. 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 Daejoo Electronic Materials

How Has Daejoo Electronic Materials Performed Recently?

Recent times have been advantageous for Daejoo Electronic Materials as its revenues have been rising faster than most other companies. It seems the market expects this form will continue into the future, hence the elevated P/S ratio. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

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

How Is Daejoo Electronic Materials' Revenue Growth Trending?

There's an inherent assumption that a company should far outperform the industry for P/S ratios like Daejoo Electronic Materials' to be considered reasonable.

If we review the last year of revenue growth, the company posted a terrific increase of 20%. 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.

Looking ahead now, revenue is anticipated to climb by 40% during the coming year according to the six analysts following the company. That's shaping up to be materially higher than the 9.7% growth forecast for the broader industry.

With this information, we can see why Daejoo Electronic Materials is trading at such a high P/S compared to the industry. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.

The Key Takeaway

The strong share price surge has lead to Daejoo Electronic Materials' P/S soaring as well. Using the price-to-sales ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

Our look into Daejoo Electronic Materials shows that its P/S ratio remains high on the merit of its strong future revenues. It appears that shareholders are confident in the company's future revenues, which is propping up the P/S. Unless these conditions change, they will continue to provide strong support to the share price.

And what about other risks? Every company has them, and we've spotted 3 warning signs for Daejoo Electronic Materials (of which 2 are a bit unpleasant!) you should know about.

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.