Market Participants Recognise Lotte Energy Materials Corporation's (KRX:020150) Revenues

When you see that almost half of the companies in the Electronic industry in Korea have price-to-sales ratios (or "P/S") below 0.9x, Lotte Energy Materials Corporation (KRX:020150) looks to be giving off some sell signals with its 2.5x P/S ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the elevated P/S.

View our latest analysis for Lotte Energy Materials

What Does Lotte Energy Materials' Recent Performance Look Like?

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. However, if this isn't the case, investors might get caught out paying too much for the stock.

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Lotte Energy Materials.

How Is Lotte Energy Materials' Revenue Growth Trending?

Lotte Energy Materials' P/S ratio would be typical for a company that's expected to deliver solid growth, and importantly, perform better than the industry.

Retrospectively, the last year delivered an exceptional 28% gain to the company's top line. The strong recent performance means it was also able to grow revenue by 65% in total over the last three years. Therefore, it's fair to say the revenue growth recently has been superb for the company.

Turning to the outlook, the next three years should generate growth of 24% each year as estimated by the eleven analysts watching the company. That's shaping up to be materially higher than the 13% each year growth forecast for the broader industry.

With this information, we can see why Lotte Energy Materials is trading at such a high P/S compared to the industry. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.

The Bottom Line On Lotte Energy Materials' P/S

We'd say the price-to-sales ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

As we suspected, our examination of Lotte Energy Materials' analyst forecasts revealed that its superior revenue outlook is contributing to its high P/S. At this stage investors feel the potential for a deterioration in revenues is quite remote, justifying the elevated P/S ratio. It's hard to see the share price falling strongly in the near future under these circumstances.

Many other vital risk factors can be found on the company's balance sheet. Our free balance sheet analysis for Lotte Energy Materials with six simple checks will allow you to discover any risks that could be an issue.

If these risks are making you reconsider your opinion on Lotte Energy Materials, explore our interactive list of high quality stocks to get an idea of what else is out there.

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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.

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