Hd Hyundai Mipo Co.,Ltd.'s (KRX:010620) Price Is Out Of Tune With Revenues

It's not a stretch to say that Hd Hyundai Mipo Co.,Ltd.'s (KRX:010620) price-to-sales (or "P/S") ratio of 1x right now seems quite "middle-of-the-road" for companies in the Machinery industry in Korea, where the median P/S ratio is around 0.9x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/S.

See our latest analysis for Hd Hyundai MipoLtd

What Does Hd Hyundai MipoLtd's P/S Mean For Shareholders?

Hd Hyundai MipoLtd could be doing better as it's been growing revenue less than most other companies lately. One possibility is that the P/S ratio is moderate because investors think this lacklustre revenue performance will turn around. However, if this isn't the case, investors might get caught out paying too much for the stock.

Keen to find out how analysts think Hd Hyundai MipoLtd's future stacks up against the industry? In that case, our free report is a great place to start.

Do Revenue Forecasts Match The P/S Ratio?

In order to justify its P/S ratio, Hd Hyundai MipoLtd 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 9.8% last year. The latest three year period has also seen an excellent 57% overall rise in revenue, aided somewhat by its short-term performance. Therefore, it's fair to say the revenue growth recently has been superb for the company.

Shifting to the future, estimates from the analysts covering the company suggest revenue should grow by 11% over the next year. That's shaping up to be materially lower than the 36% growth forecast for the broader industry.

With this in mind, we find it intriguing that Hd Hyundai MipoLtd's P/S is closely matching its industry peers. Apparently many investors in the company are less bearish than analysts indicate and aren't willing to let go of their stock right now. These shareholders may be setting themselves up for future disappointment if the P/S falls to levels more in line with the growth outlook.

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.

When you consider that Hd Hyundai MipoLtd's revenue growth estimates are fairly muted compared to the broader industry, it's easy to see why we consider it unexpected to be trading at its current P/S ratio. When we see companies with a relatively weaker revenue outlook compared to the industry, we suspect the share price is at risk of declining, sending the moderate P/S lower. This places shareholders' investments at risk and potential investors in danger of paying an unnecessary premium.

A lot of potential risks can sit within a company's balance sheet. Our free balance sheet analysis for Hd Hyundai MipoLtd with six simple checks will allow you to discover any risks that could be an issue.

If these risks are making you reconsider your opinion on Hd Hyundai MipoLtd, explore our interactive list of high quality stocks to get an idea of what else is out there.

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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.