LG Chem, Ltd. (KRX:051910) Doing What It Can To Lift Shares

There wouldn't be many who think LG Chem, Ltd.'s (KRX:051910) price-to-sales (or "P/S") ratio of 0.5x is worth a mention when the median P/S for the Chemicals industry in Korea is similar at about 0.7x. Although, it's not wise to simply ignore the P/S without explanation as investors may be disregarding a distinct opportunity or a costly mistake.

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View our latest analysis for LG Chem

How Has LG Chem Performed Recently?

While the industry has experienced revenue growth lately, LG Chem's revenue has gone into reverse gear, which is not great. Perhaps the market is expecting its poor revenue performance to improve, keeping the P/S from dropping. You'd really hope so, otherwise you're paying a relatively elevated price for a company with this sort of growth profile.

If you'd like to see what analysts are forecasting going forward, you should check out our free report on LG Chem.

How Is LG Chem's Revenue Growth Trending?

LG Chem's P/S ratio would be typical for a company that's only expected to deliver moderate growth, and importantly, perform in line with the industry.

In reviewing the last year of financials, we were disheartened to see the company's revenues fell to the tune of 3.5%. This has soured the latest three-year period, which nevertheless managed to deliver a decent 8.4% overall rise in revenue. Although it's been a bumpy ride, it's still fair to say the revenue growth recently has been mostly respectable for the company.

Shifting to the future, estimates from the analysts covering the company suggest revenue should grow by 11% each year over the next three years. Meanwhile, the rest of the industry is forecast to only expand by 7.3% per annum, which is noticeably less attractive.

With this in consideration, we find it intriguing that LG Chem's P/S is closely matching its industry peers. Apparently some shareholders are skeptical of the forecasts and have been accepting lower selling prices.

The Key Takeaway

Typically, we'd caution against reading too much into price-to-sales ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

Looking at LG Chem's analyst forecasts revealed that its superior revenue outlook isn't giving the boost to its P/S that we would've expected. Perhaps uncertainty in the revenue forecasts are what's keeping the P/S ratio consistent with the rest of the industry. This uncertainty seems to be reflected in the share price which, while stable, could be higher given the revenue forecasts.

We don't want to rain on the parade too much, but we did also find 1 warning sign for LG Chem that you need to be mindful of.

If these risks are making you reconsider your opinion on LG Chem, explore our interactive list of high quality stocks to get an idea of what else is out there.

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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.