Potential Upside For L&F Co., Ltd. (KRX:066970) Not Without Risk

It's not a stretch to say that L&F Co., Ltd.'s (KRX:066970) price-to-sales (or "P/S") ratio of 1x right now seems quite "middle-of-the-road" for companies in the Electrical industry in Korea, where the median P/S ratio is around 1.1x. 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.

View our latest analysis for L&F

How Has L&F Performed Recently?

While the industry has experienced revenue growth lately, L&F's revenue has gone into reverse gear, which is not great. Perhaps the market is expecting its poor revenue performance to improve, keeping the P/S from dropping. You'd really hope so, otherwise you're paying a relatively elevated price for a company with this sort of growth profile.

Want the full picture on analyst estimates for the company? Then our free report on L&F will help you uncover what's on the horizon.

Is There Some Revenue Growth Forecasted For L&F?

The only time you'd be comfortable seeing a P/S like L&F's is when the company's growth is tracking the industry closely.

Retrospectively, the last year delivered a frustrating 17% decrease to the company's top line. In spite of this, the company still managed to deliver immense revenue growth over the last three years. Accordingly, shareholders will be pleased, but also have some serious questions to ponder about the last 12 months.

Shifting to the future, estimates from the analysts covering the company suggest revenue should grow by 27% each year over the next three years. Meanwhile, the rest of the industry is forecast to only expand by 20% per year, which is noticeably less attractive.

In light of this, it's curious that L&F's P/S sits in line with the majority of other companies. Apparently some shareholders are skeptical of the forecasts and have been accepting lower selling prices.

What We Can Learn From L&F's P/S?

We'd say the price-to-sales ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

Despite enticing revenue growth figures that outpace the industry, L&F's P/S isn't quite what we'd expect. There could be some risks that the market is pricing in, which is preventing the P/S ratio from matching the positive outlook. At least the risk of a price drop looks to be subdued, but investors seem to think future revenue could see some volatility.

Don't forget that there may be other risks. For instance, we've identified 1 warning sign for L&F that you should be aware of.

It's important to make sure you look for a great company, not just the first idea you come across. So if growing profitability aligns with your idea of a great company, take a peek at this free list of interesting companies with strong recent earnings growth (and a low P/E).

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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.

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