Dong A Eltek Co., Ltd. (KOSDAQ:088130) Stock Rockets 50% But Many Are Still Ignoring The Company

Dong A Eltek Co., Ltd. (KOSDAQ:088130) shareholders would be excited to see that the share price has had a great month, posting a 50% gain and recovering from prior weakness. The last 30 days bring the annual gain to a very sharp 79%.

Even after such a large jump in price, there still wouldn't be many who think Dong A Eltek's price-to-sales (or "P/S") ratio of 0.5x is worth a mention when the median P/S in Korea's Electronic industry is similar at about 0.7x. While this might not raise any eyebrows, if the P/S ratio is not justified investors could be missing out on a potential opportunity or ignoring looming disappointment.

Check out our latest analysis for Dong A Eltek

What Does Dong A Eltek's P/S Mean For Shareholders?

Recent revenue growth for Dong A Eltek has been in line with the industry. Perhaps the market is expecting future revenue performance to show no drastic signs of changing, justifying the P/S being at current levels. Those who are bullish on Dong A Eltek will be hoping that revenue performance can pick up, so that they can pick up the stock at a slightly lower valuation.

Want the full picture on analyst estimates for the company? Then our free report on Dong A Eltek will help you uncover what's on the horizon.

Do Revenue Forecasts Match The P/S Ratio?

The only time you'd be comfortable seeing a P/S like Dong A Eltek's is when the company's growth is tracking the industry closely.

Retrospectively, the last year delivered a decent 6.7% gain to the company's revenues. Still, lamentably revenue has fallen 11% in aggregate from three years ago, which is disappointing. So unfortunately, we have to acknowledge that the company has not done a great job of growing revenue over that time.

Shifting to the future, estimates from the sole analyst covering the company suggest revenue should grow by 29% over the next year. With the industry only predicted to deliver 12%, the company is positioned for a stronger revenue result.

With this in consideration, we find it intriguing that Dong A Eltek's P/S is closely matching its industry peers. Apparently some shareholders are skeptical of the forecasts and have been accepting lower selling prices.

The Key Takeaway

Dong A Eltek's stock has a lot of momentum behind it lately, which has brought its P/S level with the rest of the industry. 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.

Looking at Dong A Eltek's analyst forecasts revealed that its superior revenue outlook isn't giving the boost to its P/S that we would've expected. There could be some risks that the market is pricing in, which is preventing the P/S ratio from matching the positive outlook. This uncertainty seems to be reflected in the share price which, while stable, could be higher given the revenue forecasts.

Before you take the next step, you should know about the 4 warning signs for Dong A Eltek (1 is concerning!) that we have uncovered.

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).

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

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.