KD Corporation (KOSDAQ:044180) Might Not Be As Mispriced As It Looks After Plunging 25%

The KD Corporation (KOSDAQ:044180) share price has softened a substantial 25% over the previous 30 days, handing back much of the gains the stock has made lately. The drop over the last 30 days has capped off a tough year for shareholders, with the share price down 17% in that time.

In spite of the heavy fall in price, there still wouldn't be many who think KD's price-to-sales (or "P/S") ratio of 0.1x is worth a mention when the median P/S in Korea's Real Estate industry is similar at about 0.2x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/S.

View our latest analysis for KD

What Does KD's P/S Mean For Shareholders?

As an illustration, revenue has deteriorated at KD over the last year, which is not ideal at all. One possibility is that the P/S is moderate because investors think the company might still do enough to be in line with the broader industry in the near future. If not, then existing shareholders may be a little nervous about the viability of the share price.

Want the full picture on earnings, revenue and cash flow for the company? Then our free report on KD will help you shine a light on its historical performance.

Do Revenue Forecasts Match The P/S Ratio?

KD'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.

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 13%. In spite of this, the company still managed to deliver immense revenue growth over the last three years. Therefore, it's fair to say the revenue growth recently has been superb for the company, but investors will want to ask why it is now in decline.

This is in contrast to the rest of the industry, which is expected to grow by 58% over the next year, materially lower than the company's recent medium-term annualised growth rates.

With this information, we find it interesting that KD is trading at a fairly similar P/S compared to the industry. Apparently some shareholders believe the recent performance is at its limits and have been accepting lower selling prices.

The Bottom Line On KD's P/S

With its share price dropping off a cliff, the P/S for KD looks to be in line with the rest of the Real Estate industry. 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.

To our surprise, KD revealed its three-year revenue trends aren't contributing to its P/S as much as we would have predicted, given they look better than current industry expectations. There could be some unobserved threats to revenue preventing the P/S ratio from matching this positive performance. At least the risk of a price drop looks to be subdued if recent medium-term revenue trends continue, but investors seem to think future revenue could see some volatility.

It is also worth noting that we have found 2 warning signs for KD (1 is significant!) that you need to take into consideration.

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.