Investors Appear Satisfied With Delpha Construction Co.,Ltd.'s (TWSE:2530) Prospects As Shares Rocket 27%

Despite an already strong run, Delpha Construction Co.,Ltd. (TWSE:2530) shares have been powering on, with a gain of 27% in the last thirty days. The annual gain comes to 159% following the latest surge, making investors sit up and take notice.

Since its price has surged higher, given around half the companies in Taiwan's Real Estate industry have price-to-sales ratios (or "P/S") below 3.4x, you may consider Delpha ConstructionLtd as a stock to avoid entirely with its 21.4x 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.

Check out our latest analysis for Delpha ConstructionLtd

How Delpha ConstructionLtd Has Been Performing

As an illustration, revenue has deteriorated at Delpha ConstructionLtd over the last year, which is not ideal at all. Perhaps the market believes the company can do enough to outperform the rest of the industry in the near future, which is keeping the P/S ratio high. However, if this isn't the case, investors might get caught out paying too much for the stock.

Want the full picture on earnings, revenue and cash flow for the company? Then our free report on Delpha ConstructionLtd will help you shine a light on its historical performance.

How Is Delpha ConstructionLtd's Revenue Growth Trending?

Delpha ConstructionLtd's 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 frustrating 2.1% decrease to the company's top line. Spectacularly, three year revenue growth has ballooned by several orders of magnitude, despite the drawbacks experienced in the last 12 months. So while the company has done a great job in the past, it's somewhat concerning to see revenue growth decline so harshly.

When compared to the industry's one-year growth forecast of 10%, the most recent medium-term revenue trajectory is noticeably more alluring

With this in consideration, it's not hard to understand why Delpha ConstructionLtd's P/S is high relative to its industry peers. It seems most investors are expecting this strong growth to continue and are willing to pay more for the stock.

The Final Word

Shares in Delpha ConstructionLtd have seen a strong upwards swing lately, which has really helped boost its P/S figure. 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.

It's no surprise that Delpha ConstructionLtd can support its high P/S given the strong revenue growth its experienced over the last three-year is superior to the current industry outlook. Right now shareholders are comfortable with the P/S as they are quite confident revenue aren't under threat. If recent medium-term revenue trends continue, it's hard to see the share price falling strongly in the near future under these circumstances.

And what about other risks? Every company has them, and we've spotted 1 warning sign for Delpha ConstructionLtd you should know about.

It's important to make sure you look for a great company, not just the first idea you come across. So if growing profitability aligns with your idea of a great company, take a peek at this free list of interesting companies with strong recent earnings growth (and a low P/E).

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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.