SK Chemicals Co.,Ltd's (KRX:285130) Price Is Out Of Tune With Revenues

There wouldn't be many who think SK Chemicals Co.,Ltd's (KRX:285130) 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. While this might not raise any eyebrows, if the P/S ratio is not justified investors could be missing out on a potential opportunity or ignoring looming disappointment.

See our latest analysis for SK ChemicalsLtd

How SK ChemicalsLtd Has Been Performing

With only a limited decrease in revenue compared to most other companies of late, SK ChemicalsLtd has been doing relatively well. Perhaps the market is expecting future revenue performance fall back in line with the poorer industry performance, which has kept the P/S contained. So while you could say the stock is cheap, investors will be looking for improvement before they see it as good value. But at the very least, you'd be hoping the company doesn't fall back into the pack if your plan is to pick up some stock while it's not in favour.

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

How Is SK ChemicalsLtd's Revenue Growth Trending?

SK ChemicalsLtd'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.

If we review the last year of revenue, the company posted a result that saw barely any deviation from a year ago. However, a few strong years before that means that it was still able to grow revenue by an impressive 34% in total over the last three years. So while the company has done a solid job in the past, it's somewhat concerning to see revenue growth decline as much as it has.

Looking ahead now, revenue is anticipated to slump, contracting by 4.8% during the coming year according to the only analyst following the company. With the industry predicted to deliver 20% growth, that's a disappointing outcome.

In light of this, it's somewhat alarming that SK ChemicalsLtd's P/S sits in line with the majority of other companies. It seems most investors are hoping for a turnaround in the company's business prospects, but the analyst cohort is not so confident this will happen. There's a good chance these shareholders are setting themselves up for future disappointment if the P/S falls to levels more in line with the negative growth outlook.

The Final Word

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.

It appears that SK ChemicalsLtd currently trades on a higher than expected P/S for a company whose revenues are forecast to decline. When we see a gloomy outlook like this, our immediate thoughts are that the share price is at risk of declining, negatively impacting P/S. If the poor revenue outlook tells us one thing, it's that these current price levels could be unsustainable.

Plus, you should also learn about these 4 warning signs we've spotted with SK ChemicalsLtd (including 1 which doesn't sit too well with us).

Of course, profitable companies with a history of great earnings growth are generally safer bets. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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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.