Why Investors Shouldn't Be Surprised By Solus Advanced Materials Co., Ltd.'s (KRX:336370) 29% Share Price Surge

The Solus Advanced Materials Co., Ltd. (KRX:336370) share price has done very well over the last month, posting an excellent gain of 29%. Looking further back, the 22% rise over the last twelve months isn't too bad notwithstanding the strength over the last 30 days.

Following the firm bounce in price, when almost half of the companies in Korea's Electronic industry have price-to-sales ratios (or "P/S") below 0.9x, you may consider Solus Advanced Materials as a stock not worth researching with its 4.8x 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 Solus Advanced Materials

What Does Solus Advanced Materials' Recent Performance Look Like?

Solus Advanced Materials' revenue growth of late has been pretty similar to most other companies. It might be that many expect the mediocre revenue performance to strengthen positively, which has kept the P/S ratio from falling. However, if this isn't the case, investors might get caught out paying too much for the stock.

Want the full picture on analyst estimates for the company? Then our free report on Solus Advanced Materials will help you uncover what's on the horizon.

Is There Enough Revenue Growth Forecasted For Solus Advanced Materials?

Solus Advanced 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 4.6% gain to the company's revenues. The latest three year period has also seen an excellent 42% overall rise in revenue, aided somewhat by its short-term performance. Therefore, it's fair to say the revenue growth recently has been superb for the company.

Looking ahead now, revenue is anticipated to climb by 49% during the coming year according to the eight analysts following the company. That's shaping up to be materially higher than the 17% growth forecast for the broader industry.

With this in mind, it's not hard to understand why Solus Advanced 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 Does Solus Advanced Materials' P/S Mean For Investors?

Solus Advanced Materials' P/S has grown nicely over the last month thanks to a handy boost in the share price. 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.

As we suspected, our examination of Solus Advanced Materials' analyst forecasts revealed that its superior revenue outlook is contributing to its high P/S. At this stage investors feel the potential for a deterioration in revenues is quite remote, justifying the elevated P/S ratio. 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 Solus Advanced Materials you should know about.

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.

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