Pinning Down Kbi Dong Yang Steel Pipe Co.,Ltd's (KRX:008970) P/S Is Difficult Right Now

Kbi Dong Yang Steel Pipe Co.,Ltd's (KRX:008970) price-to-sales (or "P/S") ratio of 0.9x may not look like an appealing investment opportunity when you consider close to half the companies in the Metals and Mining industry in Korea have P/S ratios below 0.3x. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's as high as it is.

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Check out our latest analysis for Kbi Dong Yang Steel PipeLtd

What Does Kbi Dong Yang Steel PipeLtd's P/S Mean For Shareholders?

For instance, Kbi Dong Yang Steel PipeLtd's receding revenue in recent times would have to be some food for thought. One possibility is that the P/S is high because investors think the company will still do enough to outperform the broader industry in the near future. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

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 Kbi Dong Yang Steel PipeLtd's earnings, revenue and cash flow.

How Is Kbi Dong Yang Steel PipeLtd's Revenue Growth Trending?

There's an inherent assumption that a company should outperform the industry for P/S ratios like Kbi Dong Yang Steel PipeLtd's to be considered reasonable.

Taking a look back first, the company's revenue growth last year wasn't something to get excited about as it posted a disappointing decline of 25%. This means it has also seen a slide in revenue over the longer-term as revenue is down 4.2% 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.

Weighing that medium-term revenue trajectory against the broader industry's one-year forecast for expansion of 5.2% shows it's an unpleasant look.

With this in mind, we find it worrying that Kbi Dong Yang Steel PipeLtd'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.

The Bottom Line On Kbi Dong Yang Steel PipeLtd's P/S

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.

Our examination of Kbi Dong Yang Steel PipeLtd revealed its shrinking revenue over the medium-term isn't resulting in a P/S as low as we expected, given the industry is set to grow. 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. If recent medium-term revenue trends continue, it will place shareholders' investments at significant risk and potential investors in danger of paying an excessive premium.

You should always think about risks. Case in point, we've spotted 2 warning signs for Kbi Dong Yang Steel PipeLtd you should be aware of.

If strong companies turning a profit tickle your fancy, then you'll want to check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).

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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.