What You Can Learn From Chunbo Co., Ltd.'s (KOSDAQ:278280) P/S

Chunbo Co., Ltd.'s (KOSDAQ:278280) price-to-sales (or "P/S") ratio of 3.6x may look like a poor investment opportunity when you consider close to half the companies in the Chemicals industry in Korea have P/S ratios below 0.7x. However, the P/S might be quite high for a reason and it requires further investigation to determine if it's justified.

See our latest analysis for Chunbo

How Chunbo Has Been Performing

Chunbo has been struggling lately as its revenue has declined faster than most other companies. One possibility is that the P/S ratio is high because investors think the company will turn things around completely and accelerate past most others in the industry. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

Want the full picture on analyst estimates for the company? Then our free report on Chunbo will help you uncover what's on the horizon.

Is There Enough Revenue Growth Forecasted For Chunbo?

In order to justify its P/S ratio, Chunbo would need to produce outstanding growth that's well in excess of the industry.

In reviewing the last year of financials, we were disheartened to see the company's revenues fell to the tune of 38%. This means it has also seen a slide in revenue over the longer-term as revenue is down 15% in total over the last three years. So unfortunately, we have to acknowledge that the company has not done a great job of growing revenue over that time.

Turning to the outlook, the next three years should generate growth of 39% per annum as estimated by the eight analysts watching the company. Meanwhile, the rest of the industry is forecast to only expand by 8.1% per year, which is noticeably less attractive.

With this in mind, it's not hard to understand why Chunbo's P/S is high relative to its industry peers. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.

The Bottom Line On Chunbo's P/S

It's argued the price-to-sales ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

We've established that Chunbo maintains its high P/S on the strength of its forecasted revenue growth being higher than the the rest of the Chemicals industry, as expected. It appears that shareholders are confident in the company's future revenues, which is propping up the P/S. Unless the analysts have really missed the mark, these strong revenue forecasts should keep the share price buoyant.

There are also other vital risk factors to consider before investing and we've discovered 1 warning sign for Chunbo that you should be aware of.

If you're unsure about the strength of Chunbo'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.