Iljin Display Co., Ltd.'s (KRX:020760) Shares Bounce 26% But Its Business Still Trails The Industry

Iljin Display Co., Ltd. (KRX:020760) shares have continued their recent momentum with a 26% gain in the last month alone. But the gains over the last month weren't enough to make shareholders whole, as the share price is still down 2.4% in the last twelve months.

In spite of the firm bounce in price, Iljin Display may still be sending buy signals at present with its price-to-sales (or "P/S") ratio of 1x, considering almost half of all companies in the Semiconductor industry in Korea have P/S ratios greater than 2x and even P/S higher than 4x aren't out of the ordinary. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's limited.

View our latest analysis for Iljin Display

What Does Iljin Display's P/S Mean For Shareholders?

As an illustration, revenue has deteriorated at Iljin Display over the last year, which is not ideal at all. It might be that many expect the disappointing revenue performance to continue or accelerate, which has repressed the P/S. If you like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's out of favour.

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

Is There Any Revenue Growth Forecasted For Iljin Display?

The only time you'd be truly comfortable seeing a P/S as low as Iljin Display's is when the company's growth is on track to lag the industry.

In reviewing the last year of financials, we were disheartened to see the company's revenues fell to the tune of 27%. This means it has also seen a slide in revenue over the longer-term as revenue is down 3.9% in total over the last three years. Therefore, it's fair to say the revenue growth recently has been undesirable for the company.

Weighing that medium-term revenue trajectory against the broader industry's one-year forecast for expansion of 75% shows it's an unpleasant look.

With this information, we are not surprised that Iljin Display is trading at a P/S lower than the industry. However, we think shrinking revenues are unlikely to lead to a stable P/S over the longer term, which could set up shareholders for future disappointment. Even just maintaining these prices could be difficult to achieve as recent revenue trends are already weighing down the shares.

The Bottom Line On Iljin Display's P/S

The latest share price surge wasn't enough to lift Iljin Display's P/S close to the industry median. 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.

Our examination of Iljin Display confirms that the company's shrinking revenue over the past medium-term is a key factor in its low price-to-sales ratio, given the industry is projected to grow. Right now shareholders are accepting the low P/S as they concede future revenue probably won't provide any pleasant surprises either. Unless the recent medium-term conditions improve, they will continue to form a barrier for the share price around these levels.

Before you take the next step, you should know about the 3 warning signs for Iljin Display (1 is a bit unpleasant!) that we have uncovered.

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.