Insufficient Growth At HD Korea Shipbuilding & Offshore Engineering Co., Ltd. (KRX:009540) Hampers Share Price

When close to half the companies operating in the Machinery industry in Korea have price-to-sales ratios (or "P/S") above 1x, you may consider HD Korea Shipbuilding & Offshore Engineering Co., Ltd. (KRX:009540) as an attractive investment with its 0.4x P/S ratio. However, the P/S might be low for a reason and it requires further investigation to determine if it's justified.

View our latest analysis for HD Korea Shipbuilding & Offshore Engineering

How HD Korea Shipbuilding & Offshore Engineering Has Been Performing

HD Korea Shipbuilding & Offshore Engineering could be doing better as it's been growing revenue less than most other companies lately. The P/S ratio is probably low because investors think this lacklustre revenue performance isn't going to get any better. If you still like the company, you'd be hoping revenue doesn't get any worse and that you could pick up some stock while it's out of favour.

Want the full picture on analyst estimates for the company? Then our free report on HD Korea Shipbuilding & Offshore Engineering will help you uncover what's on the horizon.

Is There Any Revenue Growth Forecasted For HD Korea Shipbuilding & Offshore Engineering?

There's an inherent assumption that a company should underperform the industry for P/S ratios like HD Korea Shipbuilding & Offshore Engineering's to be considered reasonable.

If we review the last year of revenue growth, the company posted a terrific increase of 23%. The strong recent performance means it was also able to grow revenue by 43% in total over the last three years. Therefore, it's fair to say the revenue growth recently has been superb for the company.

Shifting to the future, estimates from the twelve analysts covering the company suggest revenue should grow by 13% each year over the next three years. That's shaping up to be materially lower than the 29% per year growth forecast for the broader industry.

With this information, we can see why HD Korea Shipbuilding & Offshore Engineering is trading at a P/S lower than the industry. It seems most investors are expecting to see limited future growth and are only willing to pay a reduced amount for the stock.

The Final Word

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.

As expected, our analysis of HD Korea Shipbuilding & Offshore Engineering's analyst forecasts confirms that the company's underwhelming revenue outlook is a major contributor to its low P/S. Shareholders' pessimism on the revenue prospects for the company seems to be the main contributor to the depressed P/S. It's hard to see the share price rising strongly in the near future under these circumstances.

There are also other vital risk factors to consider before investing and we've discovered 1 warning sign for HD Korea Shipbuilding & Offshore Engineering that you should be aware of.

If strong companies turning a profit tickle your fancy, then you'll want to check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).

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.