Daesung Hi-Tech Co., Ltd.’s (KOSDAQ:129920) Shares Bounce 25% But Its Business Still Trails The Industry

Daesung Hi-Tech Co., Ltd. (KOSDAQ:129920) shareholders have had their patience rewarded with a 25% share price jump in the last month. The last 30 days bring the annual gain to a very sharp 67%.

In spite of the firm bounce in price, it would still be understandable if you think Daesung Hi-Tech is a stock with good investment prospects with a price-to-sales ratios (or “P/S”) of 0.7x, considering almost half the companies in Korea’s Machinery industry have P/S ratios above 1.5x. However, the P/S might be low for a reason and it requires further investigation to determine if it’s justified.

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See our latest analysis for Daesung Hi-Tech

What Does Daesung Hi-Tech’s Recent Performance Look Like?

Recent times haven’t been great for Daesung Hi-Tech as its revenue has been rising slower than most other companies. The P/S ratio is probably low because investors think this lacklustre revenue performance isn’t going to get any better. If this is the case, then existing shareholders will probably struggle to get excited about the future direction of the share price.

Keen to find out how analysts think Daesung Hi-Tech’s future stacks up against the industry? In that case, our free report is a great place to start.

How Is Daesung Hi-Tech’s Revenue Growth Trending?

In order to justify its P/S ratio, Daesung Hi-Tech would need to produce sluggish growth that’s trailing the industry.

Taking a look back first, we see that the company managed to grow revenues by a handy 6.9% last year. Ultimately though, it couldn’t turn around the poor performance of the prior period, with revenue shrinking 19% 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.

Looking ahead now, revenue is anticipated to climb by 0.1% during the coming year according to the lone analyst following the company. With the industry predicted to deliver 31% growth, the company is positioned for a weaker revenue result.

In light of this, it’s understandable that Daesung Hi-Tech’s P/S sits below the majority of other companies. Apparently many shareholders weren’t comfortable holding on while the company is potentially eyeing a less prosperous future.

The Final Word

The latest share price surge wasn’t enough to lift Daesung Hi-Tech’s P/S close to the industry median. 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.

As expected, our analysis of Daesung Hi-Tech’s analyst forecasts confirms that the company’s underwhelming revenue outlook is a major contributor to its low P/S. Right now shareholders are accepting the low P/S as they concede future revenue probably won’t provide any pleasant surprises. The company will need a change of fortune to justify the P/S rising higher in the future.

You should always think about risks. Case in point, we’ve spotted 2 warning signs for Daesung Hi-Tech you should be aware 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.