Investors Holding Back On Lotte Non - Life Insurance Co., Ltd. (KRX:000400)

There wouldn't be many who think Lotte Non - Life Insurance Co., Ltd.'s (KRX:000400) price-to-sales (or "P/S") ratio of 0.4x is worth a mention when the median P/S for the Insurance industry in Korea 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 Lotte Non - Life Insurance

What Does Lotte Non - Life Insurance's Recent Performance Look Like?

The revenue growth achieved at Lotte Non - Life Insurance over the last year would be more than acceptable for most companies. It might be that many expect the respectable revenue performance to wane, which has kept the P/S from rising. Those who are bullish on Lotte Non - Life Insurance will be hoping that this isn't the case, so that they can pick up the stock at a lower valuation.

We don't have analyst forecasts, but you can see how recent trends are setting up the company for the future by checking out our free report on Lotte Non - Life Insurance's earnings, revenue and cash flow.

Is There Some Revenue Growth Forecasted For Lotte Non - Life Insurance?

In order to justify its P/S ratio, Lotte Non - Life Insurance would need to produce growth that's similar to the industry.

Taking a look back first, we see that the company grew revenue by an impressive 27% last year. Despite this strong recent growth, it's still struggling to catch up as its three-year revenue frustratingly shrank by 20% overall. Accordingly, shareholders would have felt downbeat about the medium-term rates of revenue growth.

Comparing that to the industry, which is predicted to shrink 64% in the next 12 months, the company's downward momentum is still superior based on recent medium-term annualised revenue results.

With this in consideration, we find it intriguing but explainable that Lotte Non - Life Insurance's P/S matches closely with its industry peers. Even if the company's recent growth rates continue outperforming the industry, shrinking revenues are unlikely to lead to a stable P/S long-term. It's conceivable that the P/S falls to lower levels if the company doesn't improve its top-line growth, which would be difficult to do with the current industry outlook.

The Bottom Line On Lotte Non - Life Insurance's P/S

We'd say the price-to-sales ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

Our examination of Lotte Non - Life Insurance revealed its narrower three-year contraction in revenue isn't contributing to its P/S as much as we would have predicted, given the industry is set to shrink even more. When we see less revenue decline than the industry but a P/S that's only on par, we assume potential risks are what might be placing pressure on the P/S ratio. Perhaps there is some hesitation about the company's ability to deviate from the industry's dismal performance and maintain a relatively smaller revenue decline. While the chance of a downward share price shock is quite unlikely, there does seem to be something concerning shareholders as the relative performance would usually justify a higher price.

And what about other risks? Every company has them, and we've spotted 3 warning signs for Lotte Non - Life Insurance (of which 1 is significant!) you should know about.

If you're unsure about the strength of Lotte Non - Life Insurance's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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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.