Further Upside For Korea Industrial Co., Ltd. (KRX:002140) Shares Could Introduce Price Risks After 56% Bounce

Simply Wall St · 10/15 22:13

Korea Industrial Co., Ltd. (KRX:002140) shareholders would be excited to see that the share price has had a great month, posting a 56% gain and recovering from prior weakness. Notwithstanding the latest gain, the annual share price return of 3.6% isn't as impressive.

In spite of the firm bounce in price, there still wouldn't be many who think Korea Industrial's price-to-sales (or "P/S") ratio of 0.3x is worth a mention when it essentially matches the median P/S in Korea's Food industry. Although, it's not wise to simply ignore the P/S without explanation as investors may be disregarding a distinct opportunity or a costly mistake.

View our latest analysis for Korea Industrial

ps-multiple-vs-industry
KOSE:A002140 Price to Sales Ratio vs Industry October 15th 2024

How Korea Industrial Has Been Performing

Revenue has risen at a steady rate over the last year for Korea Industrial, which is generally not a bad outcome. It might be that many expect the respectable revenue performance to only match most other companies over the coming period, which has kept the P/S from rising. Those who are bullish on Korea Industrial will be hoping that this isn't the case, so that they can pick up the stock at a lower valuation.

Although there are no analyst estimates available for Korea Industrial, take a look at this free data-rich visualisation to see how the company stacks up on earnings, revenue and cash flow.

How Is Korea Industrial's Revenue Growth Trending?

There's an inherent assumption that a company should be matching the industry for P/S ratios like Korea Industrial's to be considered reasonable.

Retrospectively, the last year delivered a decent 4.5% gain to the company's revenues. Pleasingly, revenue has also lifted 58% in aggregate from three years ago, partly thanks to the last 12 months of growth. Therefore, it's fair to say the revenue growth recently has been superb for the company.

Comparing that recent medium-term revenue trajectory with the industry's one-year growth forecast of 8.7% shows it's noticeably more attractive.

With this information, we find it interesting that Korea Industrial is trading at a fairly similar P/S compared to the industry. Apparently some shareholders believe the recent performance is at its limits and have been accepting lower selling prices.

The Bottom Line On Korea Industrial's P/S

Korea Industrial appears to be back in favour with a solid price jump bringing its P/S back in line with other companies in the industry While the price-to-sales ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of revenue expectations.

We didn't quite envision Korea Industrial's P/S sitting in line with the wider industry, considering the revenue growth over the last three-year is higher than the current industry outlook. It'd be fair to assume that potential risks the company faces could be the contributing factor to the lower than expected P/S. While recent revenue trends over the past medium-term suggest that the risk of a price decline is low, investors appear to see the likelihood of revenue fluctuations in the future.

You need to take note of risks, for example - Korea Industrial has 4 warning signs (and 3 which make us uncomfortable) we think you should know about.

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).