Risks To Shareholder Returns Are Elevated At These Prices For Aminologics Co.,Ltd. (KOSDAQ:074430)

When close to half the companies in the Chemicals industry in Korea have price-to-sales ratios (or "P/S") below 0.7x, you may consider Aminologics Co.,Ltd. (KOSDAQ:074430) as a stock to avoid entirely with its 5.3x P/S ratio. However, the P/S might be quite high for a reason and it requires further investigation to determine if it's justified.

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View our latest analysis for AminologicsLtd

How Has AminologicsLtd Performed Recently?

For example, consider that AminologicsLtd's financial performance has been poor lately as its revenue has been in decline. It might be that many expect the company to still outplay most other companies over the coming period, which has kept the P/S from collapsing. If not, then existing shareholders may be quite nervous about the viability of the share price.

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 AminologicsLtd's earnings, revenue and cash flow.

How Is AminologicsLtd's Revenue Growth Trending?

The only time you'd be truly comfortable seeing a P/S as steep as AminologicsLtd's is when the company's growth is on track to outshine the industry decidedly.

In reviewing the last year of financials, we were disheartened to see the company's revenues fell to the tune of 30%. This means it has also seen a slide in revenue over the longer-term as revenue is down 35% in total over the last three years. Accordingly, shareholders would have felt downbeat about the medium-term rates of revenue growth.

Weighing that medium-term revenue trajectory against the broader industry's one-year forecast for expansion of 12% shows it's an unpleasant look.

With this in mind, we find it worrying that AminologicsLtd's P/S exceeds that of its industry peers. It seems most investors are ignoring the recent poor growth rate and are hoping for a turnaround in the company's business prospects. There's a very good chance existing shareholders are setting themselves up for future disappointment if the P/S falls to levels more in line with the recent negative growth rates.

What Does AminologicsLtd's P/S Mean For Investors?

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.

We've established that AminologicsLtd currently trades on a much higher than expected P/S since its recent revenues have been in decline over the medium-term. Right now we aren't comfortable with the high P/S as this revenue performance is highly unlikely to support such positive sentiment for long. Should recent medium-term revenue trends persist, it would pose a significant risk to existing shareholders' investments and prospective investors will have a hard time accepting the current value of the stock.

Before you settle on your opinion, we've discovered 2 warning signs for AminologicsLtd (1 doesn't sit too well with us!) that you should be aware of.

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.