Subdued Growth No Barrier To Dong-A ST Co., Ltd.’s (KRX:170900) Price

With a median price-to-sales (or “P/S”) ratio of close to 0.9x in the Pharmaceuticals industry in Korea, you could be forgiven for feeling indifferent about Dong-A ST Co., Ltd.’s (KRX:170900) P/S ratio of 0.7x. While this might not raise any eyebrows, if the P/S ratio is not justified investors could be missing out on a potential opportunity or ignoring looming disappointment.

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View our latest analysis for Dong-A ST

How Has Dong-A ST Performed Recently?

Recent times have been advantageous for Dong-A ST as its revenues have been rising faster than most other companies. Perhaps the market is expecting this level of performance to taper off, keeping the P/S from soaring. 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 Dong-A ST’s future stacks up against the industry? In that case, our free report is a great place to start.

Do Revenue Forecasts Match The P/S Ratio?

Dong-A ST’s P/S ratio would be typical for a company that’s only expected to deliver moderate growth, and importantly, perform in line with the industry.

Retrospectively, the last year delivered a decent 10% gain to the company’s revenues. The latest three year period has also seen a 22% overall rise in revenue, aided somewhat by its short-term performance. Therefore, it’s fair to say the revenue growth recently has been respectable for the company.

Turning to the outlook, the next year should generate growth of 1.4% as estimated by the six analysts watching the company. That’s shaping up to be materially lower than the 27% growth forecast for the broader industry.

In light of this, it’s curious that Dong-A ST’s P/S sits in line with the majority of other companies. Apparently many investors in the company are less bearish than analysts indicate and aren’t willing to let go of their stock right now. Maintaining these prices will be difficult to achieve as this level of revenue growth is likely to weigh down the shares eventually.

What Does Dong-A ST’s P/S Mean For Investors?

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.

Given that Dong-A ST’s revenue growth projections are relatively subdued in comparison to the wider industry, it comes as a surprise to see it trading at its current P/S ratio. At present, we aren’t confident in the P/S as the predicted future revenues aren’t likely to support a more positive sentiment for long. This places shareholders’ investments at risk and potential investors in danger of paying an unnecessary premium.

Before you take the next step, you should know about the 1 warning sign for Dong-A ST that we have uncovered.

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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.