DS DANSUK CO., LTD. (KRX:017860) Might Not Be As Mispriced As It Looks After Plunging 38%

DS DANSUK CO., LTD. (KRX:017860) shares have retraced a considerable 38% in the last month, reversing a fair amount of their solid recent performance. For any long-term shareholders, the last month ends a year to forget by locking in a 63% share price decline.

Although its price has dipped substantially, there still wouldn't be many who think DS DANSUK's price-to-sales (or "P/S") ratio of 0.6x is worth a mention when the median P/S in Korea's Oil and Gas industry is similar at about 0.3x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/S.

View our latest analysis for DS DANSUK

What Does DS DANSUK's Recent Performance Look Like?

As an illustration, revenue has deteriorated at DS DANSUK over the last year, which is not ideal at all. One possibility is that the P/S is moderate because investors think the company might still do enough to be in line with the broader industry in the near future. If you like the company, you'd at least be hoping this is the case so that you could potentially pick up some stock while it's not quite in favour.

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

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 DS DANSUK's to be considered reasonable.

In reviewing the last year of financials, we were disheartened to see the company's revenues fell to the tune of 9.0%. Regardless, revenue has managed to lift by a handy 11% in aggregate from three years ago, thanks to the earlier period of growth. So we can start by confirming that the company has generally done a good job of growing revenue over that time, even though it had some hiccups along the way.

Comparing that to the industry, which is only predicted to deliver 0.4% growth in the next 12 months, the company's momentum is stronger based on recent medium-term annualised revenue results.

In light of this, it's curious that DS DANSUK's P/S sits in line with the majority of other companies. Apparently some shareholders believe the recent performance is at its limits and have been accepting lower selling prices.

What Does DS DANSUK's P/S Mean For Investors?

With its share price dropping off a cliff, the P/S for DS DANSUK looks to be in line with the rest of the Oil and Gas industry. 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.

We've established that DS DANSUK currently trades on a lower than expected P/S since its recent three-year growth is higher than the wider industry forecast. There could be some unobserved threats to revenue preventing the P/S ratio from matching this positive performance. While recent revenue trends over the past medium-term suggest that the risk of a price decline is low, investors appear to see the likelihood of revenue fluctuations in the future.

It's always necessary to consider the ever-present spectre of investment risk. We've identified 4 warning signs with DS DANSUK (at least 2 which can't be ignored), and understanding them should be part of your investment process.

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.