Lotte Energy Materials Corporation (KRX:020150) Not Lagging Industry On Growth Or Pricing

When close to half the companies in the Electronic industry in Korea have price-to-sales ratios (or "P/S") below 1x, you may consider Lotte Energy Materials Corporation (KRX:020150) as a stock to potentially avoid with its 2.4x P/S ratio. However, the P/S might be high for a reason and it requires further investigation to determine if it's justified.

Check out our latest analysis for Lotte Energy Materials

What Does Lotte Energy Materials' P/S Mean For Shareholders?

Lotte Energy Materials certainly has been doing a good job lately as it's been growing revenue more than most other companies. The P/S is probably high because investors think this strong revenue performance will continue. If not, then existing shareholders might be a little nervous about the viability of the share price.

Keen to find out how analysts think Lotte Energy Materials' future stacks up against the industry? In that case, our free report is a great place to start.

How Is Lotte Energy Materials' Revenue Growth Trending?

There's an inherent assumption that a company should outperform the industry for P/S ratios like Lotte Energy Materials' to be considered reasonable.

Taking a look back first, we see that the company managed to grow revenues by a handy 11% last year. Pleasingly, revenue has also lifted 51% in aggregate from three years ago, partly thanks to the last 12 months of growth. So we can start by confirming that the company has done a great job of growing revenues over that time.

Shifting to the future, estimates from the twelve analysts covering the company suggest revenue should grow by 20% per annum over the next three years. Meanwhile, the rest of the industry is forecast to only expand by 13% per annum, which is noticeably less attractive.

In light of this, it's understandable that Lotte Energy Materials' P/S sits above the majority of other companies. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.

The Bottom Line On Lotte Energy Materials' P/S

Generally, our preference is to limit the use of the price-to-sales ratio to establishing what the market thinks about the overall health of a company.

Our look into Lotte Energy Materials shows that its P/S ratio remains high on the merit of its strong future revenues. It appears that shareholders are confident in the company's future revenues, which is propping up the P/S. Unless these conditions change, they will continue to provide strong support to the share price.

Many other vital risk factors can be found on the company's balance sheet. Take a look at our free balance sheet analysis for Lotte Energy Materials with six simple checks on some of these key factors.

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

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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.