The Price Is Right For SK IE Technology Co., Ltd. (KRX:361610) Even After Diving 25%

To the annoyance of some shareholders, SK IE Technology Co., Ltd. (KRX:361610) shares are down a considerable 25% in the last month, which continues a horrid run for the company. The recent drop completes a disastrous twelve months for shareholders, who are sitting on a 66% loss during that time.

Although its price has dipped substantially, you could still be forgiven for thinking SK IE Technology is a stock to steer clear of with a price-to-sales ratios (or "P/S") of 4.2x, considering almost half the companies in Korea's Electrical industry have P/S ratios below 1x. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's so lofty.

See our latest analysis for SK IE Technology

What Does SK IE Technology's Recent Performance Look Like?

While the industry has experienced revenue growth lately, SK IE Technology's revenue has gone into reverse gear, which is not great. Perhaps the market is expecting the poor revenue to reverse, justifying it's current high P/S.. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

Want the full picture on analyst estimates for the company? Then our free report on SK IE Technology will help you uncover what's on the horizon.

How Is SK IE Technology's Revenue Growth Trending?

SK IE Technology's P/S ratio would be typical for a company that's expected to deliver very strong growth, and importantly, perform much better than the industry.

Retrospectively, the last year delivered a frustrating 7.0% decrease to the company's top line. This has soured the latest three-year period, which nevertheless managed to deliver a decent 10% overall rise in revenue. Although it's been a bumpy ride, it's still fair to say the revenue growth recently has been mostly respectable for the company.

Turning to the outlook, the next three years should generate growth of 36% per annum as estimated by the analysts watching the company. Meanwhile, the rest of the industry is forecast to only expand by 19% per annum, which is noticeably less attractive.

With this information, we can see why SK IE Technology is trading at such a high P/S compared to the industry. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.

The Bottom Line On SK IE Technology's P/S

Even after such a strong price drop, SK IE Technology's P/S still exceeds the industry median significantly. 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 we suspected, our examination of SK IE Technology's analyst forecasts revealed that its superior revenue outlook is contributing to its high P/S. Right now shareholders are comfortable with the P/S as they are quite confident future revenues aren't under threat. Unless the analysts have really missed the mark, these strong revenue forecasts should keep the share price buoyant.

Before you take the next step, you should know about the 1 warning sign for SK IE Technology that we have uncovered.

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.