Investors Appear Satisfied With DAEDUCK ELECTRONICS Co., Ltd.'s (KRX:353200) Prospects As Shares Rocket 26%

Despite an already strong run, DAEDUCK ELECTRONICS Co., Ltd. (KRX:353200) shares have been powering on, with a gain of 26% in the last thirty days. Looking back a bit further, it's encouraging to see the stock is up 46% in the last year.

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 0.8x, you may consider DAEDUCK ELECTRONICS as a stock probably not worth researching with its 1.6x P/S ratio. However, the P/S might be high for a reason and it requires further investigation to determine if it's justified.

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Check out our latest analysis for DAEDUCK ELECTRONICS

How DAEDUCK ELECTRONICS Has Been Performing

DAEDUCK ELECTRONICS has been struggling lately as its revenue has declined faster than most other companies. Perhaps the market is predicting a change in fortunes for the company and is expecting them to blow past the rest of the industry, elevating the P/S ratio. If not, then existing shareholders may be very nervous about the viability of the share price.

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Do Revenue Forecasts Match The High P/S Ratio?

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

Retrospectively, the last year delivered a frustrating 2.7% 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 24% in total over the last three years. So unfortunately, we have to acknowledge that the company has not done a great job of growing revenue over that time.

Turning to the outlook, the next year should generate growth of 22% as estimated by the five analysts watching the company. Meanwhile, the rest of the industry is forecast to only expand by 15%, which is noticeably less attractive.

In light of this, it's understandable that DAEDUCK ELECTRONICS' P/S sits above the majority of other companies. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.

What Does DAEDUCK ELECTRONICS' P/S Mean For Investors?

DAEDUCK ELECTRONICS shares have taken a big step in a northerly direction, but its P/S is elevated as a result. We'd say the price-to-sales ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

Our look into DAEDUCK ELECTRONICS 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.

It's always necessary to consider the ever-present spectre of investment risk. We've identified 2 warning signs with DAEDUCK ELECTRONICS, and understanding these should be part of your investment process.

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.