Amorepacific Corporation's (KRX:090430) Business Is Trailing The Industry But Its Shares Aren't

Amorepacific Corporation's (KRX:090430) price-to-sales (or "P/S") ratio of 2x may not look like an appealing investment opportunity when you consider close to half the companies in the Personal Products industry in Korea have P/S ratios below 1x. However, the P/S might be high for a reason and it requires further investigation to determine if it's justified.

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View our latest analysis for Amorepacific

How Amorepacific Has Been Performing

With revenue growth that's inferior to most other companies of late, Amorepacific has been relatively sluggish. One possibility is that the P/S ratio is high because investors think this lacklustre revenue performance will improve markedly. If not, then existing shareholders may be very nervous about the viability of the share price.

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

Is There Enough Revenue Growth Forecasted For Amorepacific?

The only time you'd be truly comfortable seeing a P/S as high as Amorepacific's is when the company's growth is on track to outshine the industry.

Retrospectively, the last year delivered a decent 12% gain to the company's revenues. However, this wasn't enough as the latest three year period has seen an unpleasant 4.4% overall drop in revenue. Therefore, it's fair to say the revenue growth recently has been undesirable for the company.

Turning to the outlook, the next year should generate growth of 8.6% as estimated by the analysts watching the company. That's shaping up to be materially lower than the 23% growth forecast for the broader industry.

With this in consideration, we believe it doesn't make sense that Amorepacific's P/S is outpacing its industry peers. 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 this level of revenue growth is likely to weigh heavily on the share price eventually.

The Bottom Line On Amorepacific's P/S

While the price-to-sales ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of revenue expectations.

We've concluded that Amorepacific currently trades on a much higher than expected P/S since its forecast growth is lower than the wider industry. When we see a weak revenue outlook, we suspect the share price faces a much greater risk of declining, bringing back down the P/S figures. This places shareholders' investments at significant risk and potential investors in danger of paying an excessive premium.

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

If you're unsure about the strength of Amorepacific'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.