SK Inc.'s (KRX:034730) Subdued P/S Might Signal An Opportunity
There wouldn't be many who think SK Inc.'s (KRX:034730) price-to-sales (or "P/S") ratio of 0.1x is worth a mention when the median P/S for the Industrials industry in Korea is similar at about 0.5x. While this might not raise any eyebrows, if the P/S ratio is not justified investors could be missing out on a potential opportunity or ignoring looming disappointment.
See our latest analysis for SK
What Does SK's Recent Performance Look Like?
While the industry has experienced revenue growth lately, SK's revenue has gone into reverse gear, which is not great. It might be that many expect the dour revenue performance to strengthen positively, 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.
Want the full picture on analyst estimates for the company? Then our free report on SK will help you uncover what's on the horizon.How Is SK's Revenue Growth Trending?
In order to justify its P/S ratio, SK would need to produce growth that's similar to 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 1.6%. The last three years don't look nice either as the company has shrunk revenue by 2.2% in aggregate. Accordingly, shareholders would have felt downbeat about the medium-term rates of revenue growth.
Shifting to the future, estimates from the eleven analysts covering the company suggest revenue growth will show minor resilience over the next year growing only by 1.5%. While this isn't a particularly impressive figure, it should be noted that the the industry is expected to decline by 23%.
Even though the growth is only slight, it's peculiar that SK's P/S sits in line with the majority of other companies given the industry is set for a decline. It looks like most investors aren't convinced the company can achieve positive future growth in the face of a shrinking broader industry.
The Bottom Line On SK's P/S
Using the price-to-sales ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.
Our examination of SK's analyst forecasts revealed that its superior revenue outlook against a shaky industry isn't resulting in the company trading at a higher P/S, as per our expectations. We assume that investors are attributing some risk to the company's future revenues, keeping it from trading at a higher P/S. The market could be pricing in the event that tough industry conditions will impact future revenues. However, if you agree with the analysts' forecasts, you may be able to pick up the stock at an attractive price.
We don't want to rain on the parade too much, but we did also find 2 warning signs for SK that you need to be mindful of.
It's important to make sure you look for a great company, not just the first idea you come across. So if growing profitability aligns with your idea of a great company, take a peek at this free list of interesting companies with strong recent earnings growth (and a low P/E).
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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.