Optimistic Investors Push Korea Circuit Co., Ltd. (KRX:007810) Shares Up 52% But Growth Is Lacking

Korea Circuit Co., Ltd. (KRX:007810) shares have continued their recent momentum with a 52% gain in the last month alone. The last month tops off a massive increase of 242% in the last year.

Although its price has surged higher, it's still not a stretch to say that Korea Circuit's price-to-sales (or "P/S") ratio of 0.6x right now seems quite "middle-of-the-road" compared to the Electronic industry in Korea, where the median P/S ratio is around 0.8x. 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.

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See our latest analysis for Korea Circuit

How Korea Circuit Has Been Performing

The recently shrinking revenue for Korea Circuit has been in line with the industry. It seems that few are expecting the company's revenue performance to deviate much from most other companies, which has held the P/S back. So while you could say the stock is cheap, investors will be looking for improvement before they see it as good value. At the very least, you'd be hoping that revenue doesn't accelerate downwards if your plan is to pick up some stock while it's not in favour.

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

Is There Some Revenue Growth Forecasted For Korea Circuit?

In order to justify its P/S ratio, Korea Circuit would need to produce growth that's similar to the industry.

Retrospectively, the last year delivered a frustrating 2.2% decrease to the company's top line. This means it has also seen a slide in revenue over the longer-term as revenue is down 16% in total over the last three years. Therefore, it's fair to say the revenue growth recently has been undesirable for the company.

Looking ahead now, revenue is anticipated to climb by 5.4% during the coming year according to the one analyst following the company. With the industry predicted to deliver 18% growth, the company is positioned for a weaker revenue result.

With this in mind, we find it intriguing that Korea Circuit's P/S is closely matching its industry peers. It seems most investors are ignoring the fairly limited growth expectations and are willing to pay up for exposure to the stock. Maintaining these prices will be difficult to achieve as this level of revenue growth is likely to weigh down the shares eventually.

What We Can Learn From Korea Circuit's P/S?

Korea Circuit appears to be back in favour with a solid price jump bringing its P/S back in line with other companies in the industry Generally, our preference is to limit the use of the price-to-sales ratio to establishing what the market thinks about the overall health of a company.

Given that Korea Circuit's revenue growth projections are relatively subdued in comparison to the wider industry, it comes as a surprise to see it trading at its current P/S ratio. When we see companies with a relatively weaker revenue outlook compared to the industry, we suspect the share price is at risk of declining, sending the moderate P/S lower. Circumstances like this present a risk to current and prospective investors who may see share prices fall if the low revenue growth impacts the sentiment.

We don't want to rain on the parade too much, but we did also find 1 warning sign for Korea Circuit that you need to be mindful of.

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.