Ecopro Co., Ltd.'s (KOSDAQ:086520) P/S Still Appears To Be Reasonable

When you see that almost half of the companies in the Electrical industry in Korea have price-to-sales ratios (or "P/S") below 1.1x, Ecopro Co., Ltd. (KOSDAQ:086520) looks to be giving off some sell signals with its 2.2x P/S ratio. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's as high as it is.

Our free stock report includes 2 warning signs investors should be aware of before investing in Ecopro. Read for free now.

See our latest analysis for Ecopro

How Has Ecopro Performed Recently?

With revenue that's retreating more than the industry's average of late, Ecopro has been very sluggish. One possibility is that the P/S ratio is high because investors think the company will turn things around completely and accelerate past most others in the industry. If not, then existing shareholders may be very 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 Ecopro.

Do Revenue Forecasts Match The High P/S Ratio?

The only time you'd be truly comfortable seeing a P/S as high as Ecopro's is when the company's growth is on track to outshine 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 57%. However, a few very strong years before that means that it was still able to grow revenue by an impressive 108% in total over the last three years. Accordingly, while they would have preferred to keep the run going, shareholders would definitely welcome the medium-term rates of revenue growth.

Looking ahead now, revenue is anticipated to climb by 47% per year during the coming three years according to the only analyst following the company. Meanwhile, the rest of the industry is forecast to only expand by 19% each year, which is noticeably less attractive.

In light of this, it's understandable that Ecopro's P/S sits above the majority of other companies. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.

What Does Ecopro's P/S Mean For Investors?

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 look into Ecopro shows that its P/S ratio remains high on the merit of its strong future revenues. Right now shareholders are comfortable with the P/S as they are quite confident future revenues aren't under threat. Unless the analysts have really missed the mark, these strong revenue forecasts should keep the share price buoyant.

Before you settle on your opinion, we've discovered 2 warning signs for Ecopro (1 is a bit concerning!) that you should be aware 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.