Lotte Energy Materials Corporation (KRX:020150) Stocks Pounded By 25% But Not Lagging Industry On Growth Or Pricing

Lotte Energy Materials Corporation (KRX:020150) shares have retraced a considerable 25% in the last month, reversing a fair amount of their solid recent performance. Still, a bad month hasn't completely ruined the past year with the stock gaining 36%, which is great even in a bull market.

Even after such a large drop in price, given close to half the companies operating in Korea's Electronic industry have price-to-sales ratios (or "P/S") below 0.8x, you may still consider Lotte Energy Materials as a stock to potentially avoid with its 2.4x P/S ratio. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's as high as it is.

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See our latest analysis for Lotte Energy Materials

What Does Lotte Energy Materials' P/S Mean For Shareholders?

Lotte Energy Materials has been struggling lately as its revenue has declined faster than most other companies. One possibility is that the P/S ratio is high because investors think the company will turn things around completely and accelerate past most others in the industry. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

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

How Is Lotte Energy Materials' Revenue Growth Trending?

The only time you'd be truly comfortable seeing a P/S as high as Lotte Energy Materials' is when the company's growth is on track to outshine 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 27%. This means it has also seen a slide in revenue over the longer-term as revenue is down 6.3% 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.

Turning to the outlook, the next three years should generate growth of 27% per year as estimated by the ten analysts watching the company. With the industry only predicted to deliver 16% each year, the company is positioned for a stronger revenue result.

With this in mind, it's not hard to understand why Lotte Energy Materials' P/S is high relative to its industry peers. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.

What Does Lotte Energy Materials' P/S Mean For Investors?

Lotte Energy Materials' P/S remain high even after its stock plunged. 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.

As we suspected, our examination of Lotte Energy Materials' analyst forecasts revealed that its superior revenue outlook is contributing to its high P/S. It appears that shareholders are confident in the company's future revenues, which is propping up the P/S. Unless the analysts have really missed the mark, these strong revenue forecasts should keep the share price buoyant.

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

Of course, profitable companies with a history of great earnings growth are generally safer bets. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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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.