D.I Corporation (KRX:003160) Stock Rockets 31% As Investors Are Less Pessimistic Than Expected
Despite an already strong run, D.I Corporation (KRX:003160) shares have been powering on, with a gain of 31% in the last thirty days. The last 30 days bring the annual gain to a very sharp 68%.
Although its price has surged higher, you could still be forgiven for feeling indifferent about D.I's P/S ratio of 1.8x, since the median price-to-sales (or "P/S") ratio for the Semiconductor industry in Korea is also close to 1.7x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/S.
See our latest analysis for D.I
How D.I Has Been Performing
With revenue growth that's superior to most other companies of late, D.I has been doing relatively well. It might be that many expect the strong revenue performance to wane, which has kept the P/S ratio from rising. If you like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's not quite in favour.
Want the full picture on analyst estimates for the company? Then our free report on D.I will help you uncover what's on the horizon.How Is D.I's Revenue Growth Trending?
There's an inherent assumption that a company should be matching the industry for P/S ratios like D.I's to be considered reasonable.
If we review the last year of revenue growth, the company posted a terrific increase of 122%. The latest three year period has also seen an excellent 83% overall rise in revenue, aided by its short-term performance. So we can start by confirming that the company has done a great job of growing revenue over that time.
Shifting to the future, estimates from the two analysts covering the company suggest revenue should grow by 1.4% over the next year. That's shaping up to be materially lower than the 58% growth forecast for the broader industry.
In light of this, it's curious that D.I's P/S sits in line with the majority of other companies. Apparently many investors in the company are less bearish than analysts indicate and aren't willing to let go of their stock right now. These shareholders may be setting themselves up for future disappointment if the P/S falls to levels more in line with the growth outlook.
The Final Word
Its shares have lifted substantially and now D.I's P/S is back within range of the industry median. 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.
When you consider that D.I's revenue growth estimates are fairly muted compared to the broader industry, it's easy to see why we consider it unexpected to be trading at its current P/S ratio. At present, we aren't confident in the P/S as the predicted future revenues aren't likely to support a more positive sentiment for long. A positive change is needed in order to justify the current price-to-sales ratio.
It is also worth noting that we have found 1 warning sign for D.I that you need to take into consideration.
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.