The Market Lifts Di Dong Il Corporation (KRX:001530) Shares 32% But It Can Do More
Di Dong Il Corporation (KRX:001530) shareholders are no doubt pleased to see that the share price has bounced 32% in the last month, although it is still struggling to make up recently lost ground. Not all shareholders will be feeling jubilant, since the share price is still down a very disappointing 49% in the last twelve months.
Even after such a large jump in price, you could still be forgiven for feeling indifferent about Di Dong Il's P/S ratio of 0.7x, since the median price-to-sales (or "P/S") ratio for the Luxury industry in Korea is also close to 0.5x. 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 Di Dong Il
How Has Di Dong Il Performed Recently?
Di Dong Il hasn't been tracking well recently as its declining revenue compares poorly to other companies, which have seen some growth in their revenues on average. One possibility is that the P/S ratio is moderate because investors think this poor revenue performance will turn around. If not, then existing shareholders may be a little nervous about the viability of the share price.
If you'd like to see what analysts are forecasting going forward, you should check out our free report on Di Dong Il.What Are Revenue Growth Metrics Telling Us About The P/S?
Di Dong Il's P/S ratio would be typical for a company that's only expected to deliver moderate growth, and importantly, perform in line with the industry.
Taking a look back first, the company's revenue growth last year wasn't something to get excited about as it posted a disappointing decline of 4.6%. This means it has also seen a slide in revenue over the longer-term as revenue is down 33% 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.
Shifting to the future, estimates from the one analyst covering the company suggest revenue should grow by 26% over the next year. That's shaping up to be materially higher than the 2.4% growth forecast for the broader industry.
With this in consideration, we find it intriguing that Di Dong Il's P/S is closely matching its industry peers. It may be that most investors aren't convinced the company can achieve future growth expectations.
The Bottom Line On Di Dong Il's P/S
Di Dong Il's stock has a lot of momentum behind it lately, which has brought its P/S level with the rest of the industry. 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.
Looking at Di Dong Il's analyst forecasts revealed that its superior revenue outlook isn't giving the boost to its P/S that we would've expected. When we see a strong revenue outlook, with growth outpacing the industry, we can only assume potential uncertainty around these figures are what might be placing slight pressure on the P/S ratio. At least the risk of a price drop looks to be subdued, but investors seem to think future revenue could see some volatility.
And what about other risks? Every company has them, and we've spotted 2 warning signs for Di Dong Il you should know about.
Of course, profitable companies with a history of great earnings growth are generally safer bets. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.
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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.