Investors Holding Back On Sy Co., Ltd. (KOSDAQ:109610)

It's not a stretch to say that Sy Co., Ltd.'s (KOSDAQ:109610) price-to-sales (or "P/S") ratio of 0.4x right now seems quite "middle-of-the-road" for companies in the Building industry in Korea, where the median P/S ratio is around 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.

Check out our latest analysis for Sy

How Sy Has Been Performing

The recent revenue growth at Sy would have to be considered satisfactory if not spectacular. Perhaps the expectation moving forward is that the revenue growth will track in line with the wider industry for the near term, which has kept the P/S subdued. Those who are bullish on Sy will be hoping that this isn't the case, so that they can pick up the stock at a lower valuation.

We don't have analyst forecasts, but you can see how recent trends are setting up the company for the future by checking out our free report on Sy's earnings, revenue and cash flow.

What Are Revenue Growth Metrics Telling Us About The P/S?

There's an inherent assumption that a company should be matching the industry for P/S ratios like Sy's to be considered reasonable.

Taking a look back first, we see that the company managed to grow revenues by a handy 3.1% last year. Pleasingly, revenue has also lifted 79% in aggregate from three years ago, partly thanks to the last 12 months of growth. So we can start by confirming that the company has done a great job of growing revenues over that time.

When compared to the industry's one-year growth forecast of 10%, the most recent medium-term revenue trajectory is noticeably more alluring

With this information, we find it interesting that Sy is trading at a fairly similar P/S compared to the industry. Apparently some shareholders believe the recent performance is at its limits and have been accepting lower selling prices.

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

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.

We didn't quite envision Sy's P/S sitting in line with the wider industry, considering the revenue growth over the last three-year is higher than the current industry outlook. When we see strong revenue with faster-than-industry growth, we can only assume potential risks are what might be placing pressure on the P/S ratio. At least the risk of a price drop looks to be subdued if recent medium-term revenue trends continue, but investors seem to think future revenue could see some volatility.

The company's balance sheet is another key area for risk analysis. Take a look at our free balance sheet analysis for Sy with six simple checks on some of these key factors.

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.