CAS Corporation (KOSDAQ:016920) is priced right, but growth is missing after shares rose 26%

CAS Corporation (KOSDAQ:016920) Shareholders’ patience was rewarded with a 26% increase in the share price over the last month. Longer-term shareholders would be grateful for the recovery in the share price, as it is virtually unchanged year-on-year after the recent upswing.

Despite the significant price increase, and considering that about half of the companies operating in the Korean machinery industry have a price-to-sales ratio (or “P/S”) above 0.9x, you can still consider CAS as a solid investment opportunity 0.2x P/S ratio. Still, we would have to dig a little deeper to determine whether there is a rational basis for the reduced P/S.

Check out our latest analysis for CAS

What does CAS’s P/S mean for shareholders?

For example, consider that CAS’s financial performance has been poor recently as revenue has been declining. One possibility is that the P/E ratio is low because investors believe the company won’t do enough to prevent it from underperforming the broader industry in the near future. If you like the company, you hope it doesn’t, so you might be able to buy shares while the company falls out of favor.

Although there are no analyst estimates available for CAS, take a look free Data-rich visualization to see how the company is performing in terms of profit, revenue and cash flow.

Is revenue growth forecast for CAS?

Only if the company’s growth lags the industry can you really feel comfortable with a P/E ratio as low as CAS.

Looking back first, the company’s revenue growth last year was nothing to cheer about, as it posted a disappointing decline of 3.8%. Unfortunately, this has brought the company back to where it started three years ago, and there has been virtually no overall revenue growth during that time. Accordingly, shareholders probably would not have been too happy with the unstable medium-term growth rates.

This is in contrast to the rest of the industry, which is expected to grow 39% next year, well above the company’s recent medium-term annual growth rates.

Using this information, we can see why CAS trades at a lower P/E than the industry. It seems that most investors assume that the recent limited growth rates will continue in the future and are only willing to pay a lower amount for the stock.

What does CAS’s P/S mean for investors?

CAS’s share price has risen sharply recently, but its P/E ratio remains modest. It doesn’t make sense to use the price-to-sales ratio alone to determine whether you should sell your shares, but it can be a practical guide to the company’s future prospects.

Our research into CAS confirms that the company’s sales performance over the last three years is, as we suspected, a key factor in the low price-to-sales ratio, as it falls short of current industry expectations. For now, shareholders accept the low P/E ratio, acknowledging that future earnings are unlikely to hold any pleasant surprises. Unless recent medium-term conditions improve, they will continue to act as a barrier to the share price near these levels.

For example, you have to consider risks – CAS has 3 warning signs (and 1 thing that’s concerning) we think you should know.

It is important Make sure you’re looking for a great company and not just the first idea you come across. So if increasing profitability fits your idea of ​​a great company, take a look free List of interesting companies with strong recent earnings growth (and a low P/E ratio).

Do you have feedback on this article? Worried about the content? Get in touch directly with us. Alternatively, you can also send an email to editor-team (at) simplywallst.com.

This article from Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts using only an unbiased methodology and our articles are not intended as financial advice. It does not constitute a recommendation to buy or sell any stock and does not take into account your objectives or financial situation. Our goal is to provide you with long-term focused analysis based on fundamental data. Note that our analysis may not reflect the latest price-sensitive company announcements or qualitative material. Simply Wall St has no positions in any stocks mentioned.