HYUNGJI INNOVATION & CREATIVE Co.,Ltd's (KOSDAQ:011080) 28% Dip Still Leaving Some Shareholders Feeling Restless Over Its P/SRatio

HYUNGJI INNOVATION & CREATIVE Co.,Ltd (KOSDAQ:011080) shares have retraced a considerable 28% in the last month, reversing a fair amount of their solid recent performance. The good news is that in the last year, the stock has shone bright like a diamond, gaining 114%.

Although its price has dipped substantially, given close to half the companies operating in Korea's Luxury industry have price-to-sales ratios (or "P/S") below 0.4x, you may still consider HYUNGJI INNOVATION & CREATIVELtd as a stock to potentially avoid with its 1x P/S ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the elevated P/S.

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See our latest analysis for HYUNGJI INNOVATION & CREATIVELtd

What Does HYUNGJI INNOVATION & CREATIVELtd's P/S Mean For Shareholders?

As an illustration, revenue has deteriorated at HYUNGJI INNOVATION & CREATIVELtd over the last year, which is not ideal at all. One possibility is that the P/S is high because investors think the company will still do enough to outperform the broader industry in the near future. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

Want the full picture on earnings, revenue and cash flow for the company? Then our free report on HYUNGJI INNOVATION & CREATIVELtd will help you shine a light on its historical performance.

Is There Enough Revenue Growth Forecasted For HYUNGJI INNOVATION & CREATIVELtd?

The only time you'd be truly comfortable seeing a P/S as high as HYUNGJI INNOVATION & CREATIVELtd's is when the company's growth is on track to outshine the industry.

In reviewing the last year of financials, we were disheartened to see the company's revenues fell to the tune of 14%. The last three years don't look nice either as the company has shrunk revenue by 17% in aggregate. Therefore, it's fair to say the revenue growth recently has been undesirable for the company.

Weighing that medium-term revenue trajectory against the broader industry's one-year forecast for expansion of 6.3% shows it's an unpleasant look.

In light of this, it's alarming that HYUNGJI INNOVATION & CREATIVELtd's P/S sits above the majority of other companies. It seems most investors are ignoring the recent poor growth rate and are hoping for a turnaround in the company's business prospects. There's a very good chance existing shareholders are setting themselves up for future disappointment if the P/S falls to levels more in line with the recent negative growth rates.

The Key Takeaway

Despite the recent share price weakness, HYUNGJI INNOVATION & CREATIVELtd's P/S remains higher than most other companies in the industry. It's argued the price-to-sales ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

We've established that HYUNGJI INNOVATION & CREATIVELtd currently trades on a much higher than expected P/S since its recent revenues have been in decline over the medium-term. Right now we aren't comfortable with the high P/S as this revenue performance is highly unlikely to support such positive sentiment for long. If recent medium-term revenue trends continue, it will place shareholders' investments at significant risk and potential investors in danger of paying an excessive premium.

Before you settle on your opinion, we've discovered 3 warning signs for HYUNGJI INNOVATION & CREATIVELtd (1 makes us a bit uncomfortable!) that you should be aware of.

If companies with solid past earnings growth is up your alley, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

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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.