Investors Aren't Entirely Convinced By KX Innovation Co., Ltd.'s (KOSDAQ:122450) Revenues

When close to half the companies operating in the Media industry in Korea have price-to-sales ratios (or "P/S") above 1.4x, you may consider KX Innovation Co., Ltd. (KOSDAQ:122450) as an attractive investment with its 0.3x P/S ratio. However, the P/S might be low for a reason and it requires further investigation to determine if it's justified.

View our latest analysis for KX Innovation

What Does KX Innovation's P/S Mean For Shareholders?

Revenue has risen at a steady rate over the last year for KX Innovation, which is generally not a bad outcome. One possibility is that the P/S ratio is low because investors think this good revenue growth might actually underperform the broader industry in the near future. Those who are bullish on KX Innovation will be hoping that this isn't the case, so that they can pick up the stock at a lower valuation.

Although there are no analyst estimates available for KX Innovation, take a look at this free data-rich visualisation to see how the company stacks up on earnings, revenue and cash flow.

Is There Any Revenue Growth Forecasted For KX Innovation?

There's an inherent assumption that a company should underperform the industry for P/S ratios like KX Innovation's to be considered reasonable.

Retrospectively, the last year delivered a decent 7.1% gain to the company's revenues. Pleasingly, revenue has also lifted 51% in aggregate from three years ago, partly thanks to the last 12 months of growth. Therefore, it's fair to say the revenue growth recently has been superb for the company.

This is in contrast to the rest of the industry, which is expected to grow by 2.7% over the next year, materially lower than the company's recent medium-term annualised growth rates.

With this information, we find it odd that KX Innovation is trading at a P/S lower than the industry. It looks like most investors are not convinced the company can maintain its recent growth rates.

The Bottom Line On KX Innovation's P/S

It's argued the price-to-sales ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

We're very surprised to see KX Innovation currently trading on a much lower than expected P/S since its recent three-year growth is higher than the wider industry forecast. Potential investors that are sceptical over continued revenue performance may be preventing the P/S ratio from matching previous strong performance. It appears many are indeed anticipating revenue instability, because the persistence of these recent medium-term conditions would normally provide a boost to the share price.

It is also worth noting that we have found 3 warning signs for KX Innovation that you need to take into consideration.

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.