Benign Growth For Lotte Chemical Titan Holding Berhad (KLSE:LCTITAN) Underpins Stock's 25% Plummet

Lotte Chemical Titan Holding Berhad (KLSE:LCTITAN) shareholders that were waiting for something to happen have been dealt a blow with a 25% share price drop in the last month. Instead of being rewarded, shareholders who have already held through the last twelve months are now sitting on a 40% share price drop.

After such a large drop in price, considering around half the companies operating in Malaysia's Chemicals industry have price-to-sales ratios (or "P/S") above 1.2x, you may consider Lotte Chemical Titan Holding Berhad as an solid investment opportunity with its 0.2x P/S ratio. However, the P/S might be low for a reason and it requires further investigation to determine if it's justified.

See our latest analysis for Lotte Chemical Titan Holding Berhad

How Has Lotte Chemical Titan Holding Berhad Performed Recently?

Lotte Chemical Titan Holding Berhad hasn't been tracking well recently as its declining revenue compares poorly to other companies, which have seen some growth in their revenues on average. Perhaps the P/S remains low as investors think the prospects of strong revenue growth aren't on the horizon. If you still 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.

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Lotte Chemical Titan Holding Berhad.

Do Revenue Forecasts Match The Low P/S Ratio?

In order to justify its P/S ratio, Lotte Chemical Titan Holding Berhad would need to produce sluggish growth that's trailing the industry.

Taking a look back first, the company's revenue growth last year wasn't something to get excited about as it posted a disappointing decline of 4.6%. As a result, revenue from three years ago have also fallen 17% overall. Accordingly, shareholders would have felt downbeat about the medium-term rates of revenue growth.

Shifting to the future, estimates from the four analysts covering the company suggest revenue growth is heading into negative territory, declining 2.4% over the next year. With the industry predicted to deliver 5.3% growth, that's a disappointing outcome.

In light of this, it's understandable that Lotte Chemical Titan Holding Berhad's P/S would sit below the majority of other companies. However, shrinking revenues are unlikely to lead to a stable P/S over the longer term. There's potential for the P/S to fall to even lower levels if the company doesn't improve its top-line growth.

The Bottom Line On Lotte Chemical Titan Holding Berhad's P/S

Lotte Chemical Titan Holding Berhad's recently weak share price has pulled its P/S back below other Chemicals companies. It's argued the price-to-sales ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

As we suspected, our examination of Lotte Chemical Titan Holding Berhad's analyst forecasts revealed that its outlook for shrinking revenue is contributing to its low P/S. Right now shareholders are accepting the low P/S as they concede future revenue probably won't provide any pleasant surprises. Unless these conditions improve, they will continue to form a barrier for the share price around these levels.

It's always necessary to consider the ever-present spectre of investment risk. We've identified 1 warning sign with Lotte Chemical Titan Holding Berhad, and understanding should be part of your investment process.

If these risks are making you reconsider your opinion on Lotte Chemical Titan Holding Berhad, 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.