Micro Digital Co., Ltd. (KOSDAQ:305090) Looks Just Right With A 34% Price Jump

Micro Digital Co., Ltd. (KOSDAQ:305090) shareholders would be excited to see that the share price has had a great month, posting a 34% gain and recovering from prior weakness. Unfortunately, despite the strong performance over the last month, the full year gain of 2.9% isn't as attractive.

Since its price has surged higher, when almost half of the companies in Korea's Medical Equipment industry have price-to-sales ratios (or "P/S") below 2.3x, you may consider Micro Digital as a stock not worth researching with its 13.4x P/S ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly elevated P/S.

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Check out our latest analysis for Micro Digital

What Does Micro Digital's Recent Performance Look Like?

With revenue growth that's inferior to most other companies of late, Micro Digital has been relatively sluggish. One possibility is that the P/S ratio is high because investors think this lacklustre revenue performance will improve markedly. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

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

How Is Micro Digital's Revenue Growth Trending?

In order to justify its P/S ratio, Micro Digital would need to produce outstanding growth that's well in excess of the industry.

Taking a look back first, we see that the company grew revenue by an impressive 35% last year. The strong recent performance means it was also able to grow revenue by 65% in total over the last three years. So we can start by confirming that the company has done a great job of growing revenue over that time.

Turning to the outlook, the next three years should generate growth of 48% each year as estimated by the lone analyst watching the company. With the industry only predicted to deliver 21% per year, the company is positioned for a stronger revenue result.

With this in mind, it's not hard to understand why Micro Digital's P/S is high relative to its industry peers. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.

What Does Micro Digital's P/S Mean For Investors?

Micro Digital's P/S has grown nicely over the last month thanks to a handy boost in the share price. It's argued the price-to-sales ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

We've established that Micro Digital maintains its high P/S on the strength of its forecasted revenue growth being higher than the the rest of the Medical Equipment industry, as expected. It appears that shareholders are confident in the company's future revenues, which is propping up the P/S. 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 Micro Digital 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.