The Price Is Right For Foosung Co., Ltd. (KRX:093370)

When you see that almost half of the companies in the Chemicals industry in Korea have price-to-sales ratios (or "P/S") below 0.6x, Foosung Co., Ltd. (KRX:093370) looks to be giving off some sell signals with its 1.3x 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 as high as it is.

See our latest analysis for Foosung

How Has Foosung Performed Recently?

Recent times haven't been great for Foosung as its revenue has been falling quicker 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.

Keen to find out how analysts think Foosung's future stacks up against the industry? In that case, our free report is a great place to start.

How Is Foosung's Revenue Growth Trending?

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

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 24%. Even so, admirably revenue has lifted 62% in aggregate from three years ago, notwithstanding the last 12 months. So we can start by confirming that the company has generally done a very good job of growing revenue over that time, even though it had some hiccups along the way.

Looking ahead now, revenue is anticipated to climb by 18% per year during the coming three years according to the lone analyst following the company. Meanwhile, the rest of the industry is forecast to only expand by 8.9% each year, which is noticeably less attractive.

With this information, we can see why Foosung is trading at such a high P/S compared to the industry. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.

The Final Word

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.

As we suspected, our examination of Foosung's analyst forecasts revealed that its superior revenue outlook is contributing to its high P/S. 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.

Before you take the next step, you should know about the 2 warning signs for Foosung (1 can't be ignored!) that we have uncovered.

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