Stock Analysis

Pinning Down Doosan Enerbility Co., Ltd.'s (KRX:034020) P/S Is Difficult Right Now

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There wouldn't be many who think Doosan Enerbility Co., Ltd.'s (KRX:034020) price-to-sales (or "P/S") ratio of 0.6x is worth a mention when the median P/S for the Electrical industry in Korea is similar at about 1x. Although, it's not wise to simply ignore the P/S without explanation as investors may be disregarding a distinct opportunity or a costly mistake.

See our latest analysis for Doosan Enerbility

KOSE:A034020 Price to Sales Ratio vs Industry February 28th 2024

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

Doosan Enerbility could be doing better as it's been growing revenue less than most other companies lately. 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.

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

How Is Doosan Enerbility's Revenue Growth Trending?

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

Retrospectively, the last year delivered an exceptional 23% gain to the company's top line. Pleasingly, revenue has also lifted 38% in aggregate from three years ago, thanks to the last 12 months of growth. Accordingly, shareholders would have definitely welcomed those medium-term rates of revenue growth.

Turning to the outlook, the next three years should generate growth of 4.5% per annum as estimated by the four analysts watching the company. With the industry predicted to deliver 23% growth per year, the company is positioned for a weaker revenue result.

With this in mind, we find it intriguing that Doosan Enerbility'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. Maintaining these prices will be difficult to achieve as this level of revenue growth is likely to weigh down the shares eventually.

The Final Word

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.

When you consider that Doosan Enerbility'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. At present, we aren't confident in the P/S as the predicted future revenues aren't likely to support a more positive sentiment for long. A positive change is needed in order to justify the current price-to-sales ratio.

Many other vital risk factors can be found on the company's balance sheet. You can assess many of the main risks through our free balance sheet analysis for Doosan Enerbility with six simple checks.

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

Valuation is complex, but we're helping make it simple.

Find out whether Doosan Enerbility is potentially over or undervalued by checking out our comprehensive analysis, which includes fair value estimates, risks and warnings, dividends, insider transactions and financial health.

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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.