Potential Upside For LOTTE Corporation (KRX:004990) Not Without Risk

There wouldn't be many who think LOTTE Corporation's (KRX:004990) price-to-sales (or "P/S") ratio of 0.1x is worth a mention when the median P/S for the Industrials industry in Korea is similar at about 0.2x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/S.

Trump has pledged to "unleash" American oil and gas and these 15 US stocks have developments that are poised to benefit.

Check out our latest analysis for LOTTE

What Does LOTTE's Recent Performance Look Like?

With revenue growth that's inferior to most other companies of late, LOTTE has been relatively sluggish. It might be that many expect the uninspiring revenue performance to strengthen positively, which has kept the P/S ratio from falling. You'd really hope so, otherwise you're paying a relatively elevated price for a company with this sort of growth profile.

If you'd like to see what analysts are forecasting going forward, you should check out our free report on LOTTE.

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

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

Taking a look back first, we see that the company managed to grow revenues by a handy 3.9% last year. Pleasingly, revenue has also lifted 59% 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.

Looking ahead now, revenue is anticipated to remain somewhat buoyant, growing by 3.8% during the coming year according to the three analysts following the company. This isn't typically strong growth, but with the rest of the industry predicted to shrink by 7.2%, that would be a solid result.

Despite the marginal growth, we find it odd that LOTTE is trading at a fairly similar P/S to the industry. Apparently some shareholders are skeptical of the contrarian forecasts and have been accepting lower selling prices.

What Does LOTTE'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 examination of LOTTE's analyst forecasts revealed that its superior revenue outlook against a shaky industry isn't resulting in the company trading at a higher P/S, as per our expectations. There could be some unobserved threats to revenue preventing the P/S ratio from matching the positive outlook. One such risk is that the company may not live up to analysts' revenue trajectories in tough industry conditions. It appears some are indeed anticipating revenue instability, because the company's current prospects should normally provide a boost to the share price.

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

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

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

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.