It's Down 25% But Ilsung Construction Co., Ltd. (KRX:013360) Could Be Riskier Than It Looks

Ilsung Construction Co., Ltd. (KRX:013360) shareholders won't be pleased to see that the share price has had a very rough month, dropping 25% and undoing the prior period's positive performance. Looking at the bigger picture, even after this poor month the stock is up 87% in the last year.

Even after such a large drop in price, you could still be forgiven for feeling indifferent about Ilsung Construction's P/S ratio of 0.3x, since the median price-to-sales (or "P/S") ratio for the Construction industry in Korea is also close to 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.

Our free stock report includes 2 warning signs investors should be aware of before investing in Ilsung Construction. Read for free now.

See our latest analysis for Ilsung Construction

How Ilsung Construction Has Been Performing

For example, consider that Ilsung Construction's financial performance has been poor lately as its revenue has been in decline. It might be that many expect the company to put the disappointing revenue performance behind them over the coming period, which has kept the P/S from falling. If not, then existing shareholders may be a little nervous about the viability of the share price.

Although there are no analyst estimates available for Ilsung Construction, take a look at this free data-rich visualisation to see how the company stacks up on earnings, revenue and cash flow.

Do Revenue Forecasts Match The P/S Ratio?

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

Retrospectively, the last year delivered a frustrating 18% decrease to the company's top line. This has soured the latest three-year period, which nevertheless managed to deliver a decent 20% overall rise in revenue. Accordingly, while they would have preferred to keep the run going, shareholders would be roughly satisfied with the medium-term rates of revenue growth.

In contrast to the company, the rest of the industry is expected to decline by 1.1% over the next year, which puts the company's recent medium-term positive growth rates in a good light for now.

In light of this, it's peculiar that Ilsung Construction's P/S sits in line with the majority of other companies. It looks like most investors are not convinced the company can maintain its recent positive growth rate in the face of a shrinking broader industry.

The Final Word

With its share price dropping off a cliff, the P/S for Ilsung Construction looks to be in line with the rest of the Construction industry. 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.

As mentioned previously, Ilsung Construction currently trades on a P/S on par with the wider industry, but this is lower than expected considering its recent three-year revenue growth is beating forecasts for a struggling industry. There could be some unobserved threats to revenue preventing the P/S ratio from outpacing the industry much like its revenue performance. Perhaps there is some hesitation about the company's ability to stay its recent course and swim against the current of the broader industry turmoil. It appears some are indeed anticipating revenue instability, because this relative performance should normally provide a boost to the share price.

You should always think about risks. Case in point, we've spotted 2 warning signs for Ilsung Construction you should be aware of.

If these risks are making you reconsider your opinion on Ilsung Construction, 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.