Nexen Tire Corporation's (KRX:002350) Earnings Haven't Escaped The Attention Of Investors

It's not a stretch to say that Nexen Tire Corporation's (KRX:002350) price-to-sales (or "P/S") ratio of 0.3x seems quite "middle-of-the-road" for Auto Components companies in Korea, seeing as it matches the P/S ratio of the wider industry. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/S.

Check out our latest analysis for Nexen Tire

What Does Nexen Tire's P/S Mean For Shareholders?

With revenue growth that's inferior to most other companies of late, Nexen Tire has been relatively sluggish. Perhaps the market is expecting future revenue performance to lift, which has kept the P/S from declining. You'd really hope so, otherwise you're paying a relatively elevated price for a company with this sort of growth profile.

Keen to find out how analysts think Nexen Tire's future stacks up against the industry? In that case, our free report is a great place to start.

Do Revenue Forecasts Match The P/S Ratio?

In order to justify its P/S ratio, Nexen Tire would need to produce growth that's similar to the industry.

Retrospectively, the last year delivered a decent 4.0% gain to the company's revenues. Pleasingly, revenue has also lifted 59% 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.

Shifting to the future, estimates from the eleven analysts covering the company suggest revenue should grow by 5.6% per annum over the next three years. Meanwhile, the rest of the industry is forecast to expand by 4.7% each year, which is not materially different.

In light of this, it's understandable that Nexen Tire's P/S sits in line with the majority of other companies. Apparently shareholders are comfortable to simply hold on while the company is keeping a low profile.

The Bottom Line On Nexen Tire's P/S

Typically, we'd caution against reading too much into price-to-sales ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

We've seen that Nexen Tire maintains an adequate P/S seeing as its revenue growth figures match the rest of the industry. At this stage investors feel the potential for an improvement or deterioration in revenue isn't great enough to push P/S in a higher or lower direction. Unless these conditions change, they will continue to support the share price at these levels.

There are also other vital risk factors to consider and we've discovered 2 warning signs for Nexen Tire (1 is potentially serious!) that you should be aware of before investing here.

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.