Take Care Before Jumping Onto Solus Advanced Materials Co., Ltd. (KRX:336370) Even Though It's 28% Cheaper

The Solus Advanced Materials Co., Ltd. (KRX:336370) share price has fared very poorly over the last month, falling by a substantial 28%. The recent drop completes a disastrous twelve months for shareholders, who are sitting on a 55% loss during that time.

Even after such a large drop in price, you could still be forgiven for feeling indifferent about Solus Advanced Materials' P/S ratio of 1.1x, since the median price-to-sales (or "P/S") ratio for the Electronic industry in Korea is also close to 0.6x. 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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See our latest analysis for Solus Advanced Materials

What Does Solus Advanced Materials' Recent Performance Look Like?

With revenue growth that's superior to most other companies of late, Solus Advanced Materials has been doing relatively well. One possibility is that the P/S ratio is moderate because investors think this strong revenue performance might be about to tail off. If the company manages to stay the course, then investors should be rewarded with a share price that matches its revenue figures.

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

How Is Solus Advanced Materials' Revenue Growth Trending?

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

Taking a look back first, we see that the company grew revenue by an impressive 33% last year. The latest three year period has also seen an excellent 50% overall rise in revenue, aided by its short-term performance. Therefore, it's fair to say the revenue growth recently has been superb for the company.

Looking ahead now, revenue is anticipated to climb by 22% per annum during the coming three years according to the five analysts following the company. With the industry only predicted to deliver 11% per year, the company is positioned for a stronger revenue result.

With this in consideration, we find it intriguing that Solus Advanced Materials' P/S is closely matching its industry peers. Apparently some shareholders are skeptical of the forecasts and have been accepting lower selling prices.

The Final Word

Solus Advanced Materials' plummeting stock price has brought its P/S back to a similar region as the rest of the industry. 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.

We've established that Solus Advanced Materials currently trades on a lower than expected P/S since its forecasted revenue growth is higher than the wider industry. When we see a strong revenue outlook, with growth outpacing the industry, we can only assume potential uncertainty around these figures are what might be placing slight pressure on the P/S ratio. It appears some are indeed anticipating revenue instability, because these conditions should normally provide a boost to the share price.

Plus, you should also learn about these 2 warning signs we've spotted with Solus Advanced Materials (including 1 which doesn't sit too well with us).

If you're unsure about the strength of Solus Advanced 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.