Iljeong Industrial Co.,Ltd's (KRX:008500) Popularity With Investors Is Under Threat From Overpricing

With a median price-to-sales (or "P/S") ratio of close to 0.4x in the Luxury industry in Korea, you could be forgiven for feeling indifferent about Iljeong Industrial Co.,Ltd's (KRX:008500) P/S ratio, which comes in at about the same. 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 Iljeong IndustrialLtd

What Does Iljeong IndustrialLtd's Recent Performance Look Like?

Iljeong IndustrialLtd has been doing a good job lately as it's been growing revenue at a solid pace. It might be that many expect the respectable revenue performance to wane, which has kept the P/S from rising. If that doesn't eventuate, then existing shareholders probably aren't too pessimistic about the future direction of the share price.

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

Is There Some Revenue Growth Forecasted For Iljeong IndustrialLtd?

In order to justify its P/S ratio, Iljeong IndustrialLtd would need to produce growth that's similar to the industry.

Retrospectively, the last year delivered an exceptional 20% gain to the company's top line. As a result, it also grew revenue by 8.2% in total over the last three years. Accordingly, shareholders would have probably been satisfied with the medium-term rates of revenue growth.

Comparing the recent medium-term revenue trends against the industry's one-year growth forecast of 6.1% shows it's noticeably less attractive.

With this in mind, we find it intriguing that Iljeong IndustrialLtd's P/S is comparable to that of its industry peers. It seems most investors are ignoring the fairly limited recent growth rates and are willing to pay up for exposure to the stock. Maintaining these prices will be difficult to achieve as a continuation of recent revenue trends is likely to weigh down the shares eventually.

What We Can Learn From Iljeong IndustrialLtd's P/S?

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.

Our examination of Iljeong IndustrialLtd revealed its poor three-year revenue trends aren't resulting in a lower P/S as per our expectations, given they look worse than current industry outlook. When we see weak revenue with slower than industry growth, we suspect the share price is at risk of declining, bringing the P/S back in line with expectations. If recent medium-term revenue trends continue, the probability of a share price decline will become quite substantial, placing shareholders at risk.

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

Of course, profitable companies with a history of great earnings growth are generally safer bets. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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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.