Subdued Growth No Barrier To LG Display Co., Ltd. (KRX:034220) With Shares Advancing 34%

LG Display Co., Ltd. (KRX:034220) shares have continued their recent momentum with a 34% gain in the last month alone. Looking back a bit further, it's encouraging to see the stock is up 49% in the last year.

Even after such a large jump in price, there still wouldn't be many who think LG Display's price-to-sales (or "P/S") ratio of 0.3x is worth a mention when the median P/S in Korea's Electronic industry is similar at about 0.8x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/S.

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Check out our latest analysis for LG Display

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

Recent times have been pleasing for LG Display as its revenue has risen in spite of the industry's average revenue going into reverse. One possibility is that the P/S ratio is moderate because investors think the company's revenue will be less resilient moving forward. 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 not quite in favour.

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

How Is LG Display's Revenue Growth Trending?

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

If we review the last year of revenue growth, the company posted a worthy increase of 9.0%. Ultimately though, it couldn't turn around the poor performance of the prior period, with revenue shrinking 6.4% in total over the last three years. So unfortunately, we have to acknowledge that the company has not done a great job of growing revenue over that time.

Looking ahead now, revenue is anticipated to slump, contracting by 2.8% during the coming year according to the analysts following the company. With the industry predicted to deliver 15% growth, that's a disappointing outcome.

With this information, we find it concerning that LG Display is trading at a fairly similar P/S compared to the industry. It seems most investors are hoping for a turnaround in the company's business prospects, but the analyst cohort is not so confident this will happen. Only the boldest would assume these prices are sustainable as these declining revenues are likely to weigh on the share price eventually.

What We Can Learn From LG Display's P/S?

Its shares have lifted substantially and now LG Display's P/S is back within range of the industry median. 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.

While LG Display's P/S isn't anything out of the ordinary for companies in the industry, we didn't expect it given forecasts of revenue decline. With this in mind, we don't feel the current P/S is justified as declining revenues are unlikely to support a more positive sentiment for long. If the declining revenues were to materialize in the form of a declining share price, shareholders will be feeling the pinch.

There are also other vital risk factors to consider before investing and we've discovered 1 warning sign for LG Display that you should be aware of.

If you're unsure about the strength of LG Display's 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.