Revenues Tell The Story For Ecopro Co., Ltd. (KOSDAQ:086520)

Ecopro Co., Ltd.'s (KOSDAQ:086520) price-to-sales (or "P/S") ratio of 2x may not look like an appealing investment opportunity when you consider close to half the companies in the Electrical industry in Korea have P/S ratios below 1.2x. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the elevated P/S.

Check out our latest analysis for Ecopro

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

Recent revenue growth for Ecopro has been in line with the industry. One possibility is that the P/S ratio is high because investors think this modest revenue performance will accelerate. However, if this isn't the case, investors might get caught out paying too much for the stock.

Want the full picture on analyst estimates for the company? Then our free report on Ecopro will help you uncover what's on the horizon.

How Is Ecopro's Revenue Growth Trending?

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.

If we review the last year of revenue growth, the company posted a terrific increase of 29%. This great performance means it was also able to deliver immense revenue growth over the last three years. So we can start by confirming that the company has done a tremendous job of growing revenue over that time.

Shifting to the future, estimates from the only analyst covering the company suggest revenue should grow by 15% over the next year. With the industry only predicted to deliver 2.2%, the company is positioned for a stronger revenue result.

With this information, we can see why Ecopro is trading at such a high P/S compared to the industry. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.

The Bottom Line On Ecopro's P/S

It's argued the price-to-sales ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

We've established that Ecopro maintains its high P/S on the strength of its forecasted revenue growth being higher than the the rest of the Electrical industry, as expected. At this stage investors feel the potential for a deterioration in revenues is quite remote, justifying the elevated P/S ratio. Unless these conditions change, they will continue to provide strong support to the share price.

And what about other risks? Every company has them, and we've spotted 2 warning signs for Ecopro (of which 1 can't be ignored!) you should know about.

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.