Market Still Lacking Some Conviction On Barrel Co., Ltd (KOSDAQ:267790)

It's not a stretch to say that Barrel Co., Ltd's (KOSDAQ:267790) price-to-sales (or "P/S") ratio of 0.9x right now seems quite "middle-of-the-road" for companies in the Luxury industry in Korea, where the median P/S ratio is around 0.5x. 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.

View our latest analysis for Barrel

What Does Barrel's Recent Performance Look Like?

With revenue growth that's exceedingly strong of late, Barrel has been doing very well. The P/S is probably moderate because investors think this strong revenue growth might not be enough to outperform the broader industry in the near future. If you like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's not quite in favour.

Although there are no analyst estimates available for Barrel, 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 Barrel's to be considered reasonable.

If we review the last year of revenue growth, the company posted a terrific increase of 53%. The strong recent performance means it was also able to grow revenue by 118% in total over the last three years. So we can start by confirming that the company has done a great job of growing revenue over that time.

Comparing that to the industry, which is only predicted to deliver 4.7% growth in the next 12 months, the company's momentum is stronger based on recent medium-term annualised revenue results.

With this information, we find it interesting that Barrel is trading at a fairly similar P/S compared to the industry. Apparently some shareholders believe the recent performance is at its limits and have been accepting lower selling prices.

The Key Takeaway

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.

To our surprise, Barrel revealed its three-year revenue trends aren't contributing to its P/S as much as we would have predicted, given they look better than current industry expectations. It'd be fair to assume that potential risks the company faces could be the contributing factor to the lower than expected P/S. At least the risk of a price drop looks to be subdued if recent medium-term revenue trends continue, but investors seem to think future revenue could see some volatility.

You always need to take note of risks, for example - Barrel has 1 warning sign we think 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.