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华尔街日报Obigo, Inc. (KOSDAQ:352910) Stocks Shoot Up 38% But Its P/S Still Looks Reasonable
The Obigo, Inc. (KOSDAQ:352910) share price has done very well over the last month, posting an excellent gain of 38%. But the gains over the last month weren't enough to make shareholders whole, as the share price is still down 8.2% in the last twelve months.
Since its price has surged higher, when almost half of the companies in Korea's Software industry have price-to-sales ratios (or "P/S") below 1.8x, you may consider Obigo as a stock probably not worth researching with its 2.5x P/S ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the elevated P/S.
View our latest analysis for Obigo
What Does Obigo's P/S Mean For Shareholders?
Obigo certainly has been doing a great job lately as it's been growing its revenue at a really rapid pace. Perhaps the market is expecting future revenue performance to outperform the wider market, which has seemingly got people interested in the stock. However, if this isn't the case, investors might get caught out paying too much for the stock.
Although there are no analyst estimates available for Obigo, take a look at this free data-rich visualisation to see how the company stacks up on earnings, revenue and cash flow.How Is Obigo's Revenue Growth Trending?
There's an inherent assumption that a company should outperform the industry for P/S ratios like Obigo's to be considered reasonable.
Taking a look back first, we see that the company grew revenue by an impressive 101% last year. The strong recent performance means it was also able to grow revenue by 241% 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.
Comparing that recent medium-term revenue trajectory with the industry's one-year growth forecast of 31% shows it's noticeably more attractive.
In light of this, it's understandable that Obigo's P/S sits above the majority of other companies. Presumably shareholders aren't keen to offload something they believe will continue to outmanoeuvre the wider industry.
The Key Takeaway
Obigo shares have taken a big step in a northerly direction, but its P/S is elevated as a result. Typically, we'd caution against reading too much into price-to-sales ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.
It's no surprise that Obigo 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. At this stage investors feel the potential continued revenue growth in the future is great enough to warrant an inflated P/S. If recent medium-term revenue trends continue, it's hard to see the share price falling strongly in the near future under these circumstances.
Don't forget that there may be other risks. For instance, we've identified 2 warning signs for Obigo that you should be aware of.
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.