Sam-A Aluminium Company, Limited (KRX:006110) Shares May Have Slumped 26% But Getting In Cheap Is Still Unlikely

Sam-A Aluminium Company, Limited (KRX:006110) shares have had a horrible month, losing 26% after a relatively good period beforehand. The recent drop completes a disastrous twelve months for shareholders, who are sitting on a 67% loss during that time.

Even after such a large drop in price, given around half the companies in Korea's Metals and Mining industry have price-to-sales ratios (or "P/S") below 0.3x, you may still consider Sam-A Aluminium Company as a stock to avoid entirely with its 2.3x P/S ratio. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's so lofty.

Check out our latest analysis for Sam-A Aluminium Company

What Does Sam-A Aluminium Company's Recent Performance Look Like?

For example, consider that Sam-A Aluminium Company'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.

Want the full picture on earnings, revenue and cash flow for the company? Then our free report on Sam-A Aluminium Company will help you shine a light on its historical performance.

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

Sam-A Aluminium Company's P/S ratio would be typical for a company that's expected to deliver very strong growth, and importantly, perform much better than the industry.

Retrospectively, the last year delivered a frustrating 11% decrease to the company's top line. This has soured the latest three-year period, which nevertheless managed to deliver a decent 6.1% overall rise in revenue. Accordingly, while they would have preferred to keep the run going, shareholders would be roughly satisfied with the medium-term rates of revenue growth.

Comparing the recent medium-term revenue trends against the industry's one-year growth forecast of 6.2% shows it's noticeably less attractive.

With this in mind, we find it worrying that Sam-A Aluminium Company's P/S exceeds that of its industry peers. It seems most investors are ignoring the fairly limited recent growth rates and are hoping for a turnaround in the company's business prospects. Only the boldest would assume these prices are sustainable as a continuation of recent revenue trends is likely to weigh heavily on the share price eventually.

The Key Takeaway

A significant share price dive has done very little to deflate Sam-A Aluminium Company's very lofty P/S. Using the price-to-sales ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

Our examination of Sam-A Aluminium Company revealed its poor three-year revenue trends aren't detracting from the P/S as much as we though, given they look worse than current industry expectations. Right now we aren't comfortable with the high P/S as this revenue performance isn't likely to support such positive sentiment for long. Unless there is a significant improvement in the company's medium-term performance, it will be difficult to prevent the P/S ratio from declining to a more reasonable level.

Having said that, be aware Sam-A Aluminium Company is showing 2 warning signs in our investment analysis, and 1 of those is concerning.

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.