Kencoa Aerospace Corporation's (KOSDAQ:274090) Shares May Have Run Too Fast Too Soon
It's not a stretch to say that Kencoa Aerospace Corporation's (KOSDAQ:274090) price-to-sales (or "P/S") ratio of 1.9x right now seems quite "middle-of-the-road" for companies in the Aerospace & Defense industry in Korea, where the median P/S ratio is around 2x. 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 Kencoa Aerospace
How Kencoa Aerospace Has Been Performing
For example, consider that Kencoa Aerospace's financial performance has been poor lately as its revenue has been in decline. It might be that many expect the company to put the disappointing revenue performance behind them over the coming period, which has kept the P/S from falling. If not, then existing shareholders may be a little nervous about the viability of the share price.
Although there are no analyst estimates available for Kencoa Aerospace, take a look at this free data-rich visualisation to see how the company stacks up on earnings, revenue and cash flow.How Is Kencoa Aerospace's Revenue Growth Trending?
In order to justify its P/S ratio, Kencoa Aerospace would need to produce growth that's similar to the industry.
Retrospectively, the last year delivered a frustrating 16% decrease to the company's top line. Regardless, revenue has managed to lift by a handy 7.4% in aggregate from three years ago, thanks to the earlier period of growth. Although it's been a bumpy ride, it's still fair to say the revenue growth recently has been mostly respectable for the company.
Comparing the recent medium-term revenue trends against the industry's one-year growth forecast of 37% shows it's noticeably less attractive.
With this in mind, we find it intriguing that Kencoa Aerospace's P/S is comparable to that of its industry peers. It seems most investors are ignoring the fairly limited recent growth rates and are willing to pay up for exposure to the stock. Maintaining these prices will be difficult to achieve as a continuation of recent revenue trends is likely to weigh down the shares eventually.
What We Can Learn From Kencoa Aerospace's P/S?
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.
Our examination of Kencoa Aerospace revealed its poor three-year revenue trends aren't resulting in a lower P/S as per our expectations, given they look worse than current industry outlook. When we see weak revenue with slower than industry growth, we suspect the share price is at risk of declining, bringing the P/S back in line with expectations. If recent medium-term revenue trends continue, the probability of a share price decline will become quite substantial, placing shareholders at risk.
Before you settle on your opinion, we've discovered 1 warning sign for Kencoa Aerospace 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.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
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.