Some Shareholders Feeling Restless Over Lotte Shopping Co., Ltd.'s (KRX:023530) P/S Ratio

There wouldn't be many who think Lotte Shopping Co., Ltd.'s (KRX:023530) price-to-sales (or "P/S") ratio of 0.1x is worth a mention when the median P/S for the Multiline Retail industry in Korea is similar at about 0.4x. 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.

Check out our latest analysis for Lotte Shopping

How Lotte Shopping Has Been Performing

Lotte Shopping has been doing a reasonable job lately as its revenue hasn't declined as much as most other companies. It might be that many expect the comparatively superior revenue performance to vanish, which has kept the P/S from rising. 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 Lotte Shopping.

Is There Some Revenue Growth Forecasted For Lotte Shopping?

The only time you'd be comfortable seeing a P/S like Lotte Shopping's is when the company's growth is tracking the industry closely.

In reviewing the last year of financials, we were disheartened to see the company's revenues fell to the tune of 5.0%. This means it has also seen a slide in revenue over the longer-term as revenue is down 9.3% in total over the last three years. Therefore, it's fair to say the revenue growth recently has been undesirable for the company.

Turning to the outlook, the next year should generate growth of 2.0% as estimated by the analysts watching the company. That's shaping up to be materially lower than the 14% growth forecast for the broader industry.

With this in mind, we find it intriguing that Lotte Shopping's P/S is closely matching its industry peers. Apparently many investors in the company are less bearish than analysts indicate and aren't willing to let go of their stock right now. Maintaining these prices will be difficult to achieve as this level of revenue growth is likely to weigh down the shares eventually.

The Bottom Line On Lotte Shopping's P/S

While the price-to-sales ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of revenue expectations.

Given that Lotte Shopping's revenue growth projections are relatively subdued in comparison to the wider industry, it comes as a surprise to see it trading at its current P/S ratio. When we see companies with a relatively weaker revenue outlook compared to the industry, we suspect the share price is at risk of declining, sending the moderate P/S lower. Circumstances like this present a risk to current and prospective investors who may see share prices fall if the low revenue growth impacts the sentiment.

Having said that, be aware Lotte Shopping is showing 3 warning signs in our investment analysis, and 1 of those is potentially serious.

If you're unsure about the strength of Lotte Shopping's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.