SK Innovation Co., Ltd. (KRX:096770) Doing What It Can To Lift Shares

There wouldn't be many who think SK Innovation Co., Ltd.'s (KRX:096770) price-to-sales (or "P/S") ratio of 0.2x is worth a mention when the median P/S for the Oil and Gas industry in Korea is similar at about 0.4x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/S.

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Check out our latest analysis for SK Innovation

How Has SK Innovation Performed Recently?

There hasn't been much to differentiate SK Innovation's and the industry's revenue growth lately. It seems that many are expecting the mediocre revenue performance to persist, which has held the P/S ratio back. Those who are bullish on SK Innovation will be hoping that revenue performance can pick up, so that they can pick up the stock at a slightly lower valuation.

If you'd like to see what analysts are forecasting going forward, you should check out our free report on SK Innovation.

What Are Revenue Growth Metrics Telling Us About The P/S?

There's an inherent assumption that a company should be matching the industry for P/S ratios like SK Innovation's to be considered reasonable.

If we review the last year of revenue, the company posted a result that saw barely any deviation from a year ago. Still, the latest three year period was better as it's delivered a decent 24% overall rise in revenue. Accordingly, shareholders probably wouldn't have been overly satisfied with the unstable medium-term growth rates.

Looking ahead now, revenue is anticipated to remain somewhat buoyant, growing by 4.8% each year during the coming three years according to the analysts following the company. This isn't typically strong growth, but with the rest of the industry predicted to shrink by 0.6% per annum, that would be a solid result.

Even though the growth is only slight, it's peculiar that SK Innovation's P/S sits in line with the majority of other companies given the industry is set for a decline. Apparently some shareholders are skeptical of the contrarian forecasts and have been accepting lower selling prices.

What Does SK Innovation's P/S Mean For Investors?

While the price-to-sales ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of revenue expectations.

We've established that SK Innovation currently trades on a lower than expected P/S since its growth forecasts are potentially beating a struggling industry. We assume that investors are attributing some risk to the company's future revenues, keeping it from trading at a higher P/S. One such risk is that the company may not live up to analysts' revenue trajectories in tough industry conditions. It appears some are indeed anticipating revenue instability, because the company's current prospects should normally provide a boost to the share price.

You always need to take note of risks, for example - SK Innovation has 3 warning signs we think you should be aware of.

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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.