Lotte Non - Life Insurance Co., Ltd. (KRX:000400) Might Not Be As Mispriced As It Looks

It's not a stretch to say that Lotte Non - Life Insurance Co., Ltd.'s (KRX:000400) price-to-sales (or "P/S") ratio of 0.3x seems quite "middle-of-the-road" for Insurance companies in Korea, seeing as it matches the P/S ratio of the wider industry. 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 P/S Mean For Shareholders?

Revenue has risen firmly for Lotte Non - Life Insurance recently, which is pleasing to see. One possibility is that the P/S is moderate because investors think this respectable revenue growth might not be enough to outperform the broader industry in the near future. 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 Lotte Non - Life Insurance will help you shine a light on its historical performance.

Do Revenue Forecasts Match The P/S Ratio?

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 managed to grow revenues by a handy 8.1% last year. However, due to its less than impressive performance prior to this period, revenue growth is practically non-existent over the last three years overall. Therefore, it's fair to say that revenue growth has been inconsistent recently for the company.

This is in contrast to the rest of the industry, which is expected to decline by 34% over the next year, even worse than the company's recent medium-term annualised revenue decline.

With this information, it's perhaps curious but not a major surprise that Lotte Non - Life Insurance is trading at a fairly similar P/S in comparison. There's no guarantee the P/S has found a floor yet with recent revenue going backwards, despite the industry heading down even harder. Even just maintaining these prices will be difficult to achieve as recent revenue trends are already weighing down the shares.

The Key Takeaway

Generally, our preference is to limit the use of the price-to-sales ratio to establishing what the market thinks about the overall health of a company.

Even though revenue is has been declining, we've seen that Lotte Non - Life Insurance's P/S remains higher than the industry, partially attributable to the fact that the industry's revenue outlook is set to decline even further. The fact that the company's P/S is on par with the industry despite the fact that it outperformed it could be an indication of some unobserved threats to future revenues. 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. It appears some are indeed anticipating revenue instability, because this relative performance should normally provide a boost to the share price.

We don't want to rain on the parade too much, but we did also find 2 warning signs for Lotte Non - Life Insurance that you need to be mindful 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.