The Price Is Right For Daejoo Electronic Materials Co., Ltd. (KOSDAQ:078600) Even After Diving 26%

The Daejoo Electronic Materials Co., Ltd. (KOSDAQ:078600) share price has softened a substantial 26% over the previous 30 days, handing back much of the gains the stock has made lately. Looking back over the past twelve months the stock has been a solid performer regardless, with a gain of 13%.

Even after such a large drop in price, given around half the companies in Korea's Electronic industry have price-to-sales ratios (or "P/S") below 0.7x, you may still consider Daejoo Electronic Materials as a stock to avoid entirely with its 7.7x 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.

Check out our latest analysis for Daejoo Electronic Materials

What Does Daejoo Electronic Materials' P/S Mean For Shareholders?

Daejoo Electronic Materials certainly has been doing a good job lately as it's been growing revenue more than most other companies. The P/S is probably high because investors think this strong revenue performance will continue. If not, then existing shareholders might be a little nervous about the viability of the share price.

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Daejoo Electronic Materials.

Do Revenue Forecasts Match The High P/S Ratio?

Daejoo Electronic Materials' P/S ratio would be typical for a company that's expected to deliver very strong growth, and importantly, perform much better than the industry.

Retrospectively, the last year delivered a decent 12% gain to the company's revenues. Revenue has also lifted 19% in aggregate from three years ago, partly thanks to the last 12 months of growth. Therefore, it's fair to say the revenue growth recently has been respectable for the company.

Shifting to the future, estimates from the three analysts covering the company suggest revenue should grow by 51% over the next year. That's shaping up to be materially higher than the 10% growth forecast for the broader industry.

With this in mind, it's not hard to understand why Daejoo Electronic Materials' 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 We Can Learn From Daejoo Electronic Materials' P/S?

Even after such a strong price drop, Daejoo Electronic Materials' P/S still exceeds the industry median significantly. Typically, we'd caution against reading too much into price-to-sales ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

We've established that Daejoo Electronic Materials 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 the analysts have really missed the mark, these strong revenue forecasts should keep the share price buoyant.

Having said that, be aware Daejoo Electronic Materials is showing 3 warning signs in our investment analysis, and 2 of those don't sit too well with us.

If strong companies turning a profit tickle your fancy, then you'll want to check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).

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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.