Some Confidence Is Lacking In Doosan Corporation (KRX:000150) As Shares Slide 34%

Doosan Corporation (KRX:000150) shares have had a horrible month, losing 34% after a relatively good period beforehand. Looking at the bigger picture, even after this poor month the stock is up 39% in the last year.

Even after such a large drop in price, it's still not a stretch to say that Doosan's price-to-sales (or "P/S") ratio of 0.1x right now seems quite "middle-of-the-road" compared to the Industrials industry in Korea, where the median P/S ratio is around 0.2x. 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.

View our latest analysis for Doosan

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

Recent times have been pleasing for Doosan as its revenue has risen in spite of the industry's average revenue going into reverse. Perhaps the market is expecting its current strong performance to taper off in accordance to the rest of the industry, which has kept the P/S contained. If not, then existing shareholders have reason to be feeling optimistic about the future direction of the share price.

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

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 Doosan's to be considered reasonable.

Retrospectively, the last year delivered a decent 6.9% gain to the company's revenues. The latest three year period has also seen an excellent 76% overall rise in revenue, aided somewhat by its short-term performance. Accordingly, shareholders would have definitely welcomed those medium-term rates of revenue growth.

Looking ahead now, revenue is anticipated to slump, contracting by 2.5% during the coming year according to the four analysts following the company. Meanwhile, the broader industry is forecast to expand by 31%, which paints a poor picture.

With this in consideration, we think it doesn't make sense that Doosan's P/S is closely matching its industry peers. It seems most investors are hoping for a turnaround in the company's business prospects, but the analyst cohort is not so confident this will happen. Only the boldest would assume these prices are sustainable as these declining revenues are likely to weigh on the share price eventually.

The Key Takeaway

Following Doosan's share price tumble, its P/S is just clinging on to the industry median 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.

Our check of Doosan's analyst forecasts revealed that its outlook for shrinking revenue isn't bringing down its P/S as much as we would have predicted. When we see a gloomy outlook like this, our immediate thoughts are that the share price is at risk of declining, negatively impacting P/S. If the declining revenues were to materialize in the form of a declining share price, shareholders will be feeling the pinch.

It is also worth noting that we have found 2 warning signs for Doosan that you need to take into consideration.

If you're unsure about the strength of Doosan's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com