Taeyang Metal Industrial Co., Ltd. (KRX:004100) Stock's 26% Dive Might Signal An Opportunity But It Requires Some Scrutiny

Taeyang Metal Industrial Co., Ltd. (KRX:004100) shareholders that were waiting for something to happen have been dealt a blow with a 26% share price drop in the last month. Longer-term, the stock has been solid despite a difficult 30 days, gaining 23% in the last year.

In spite of the heavy fall in price, you could still be forgiven for feeling indifferent about Taeyang Metal Industrial's P/S ratio of 0.1x, since the median price-to-sales (or "P/S") ratio for the Auto Components industry in Korea is also close to 0.3x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/S.

See our latest analysis for Taeyang Metal Industrial

What Does Taeyang Metal Industrial's P/S Mean For Shareholders?

Revenue has risen firmly for Taeyang Metal Industrial recently, which is pleasing to see. One possibility is that the P/S is moderate because investors think this respectable revenue growth might not be enough to outperform the broader industry in the near future. Those who are bullish on Taeyang Metal Industrial will be hoping that this isn't the case, so that they can pick up the stock at a lower valuation.

We don't have analyst forecasts, but you can see how recent trends are setting up the company for the future by checking out our free report on Taeyang Metal Industrial's earnings, revenue and cash flow.

Is There Some Revenue Growth Forecasted For Taeyang Metal Industrial?

There's an inherent assumption that a company should be matching the industry for P/S ratios like Taeyang Metal Industrial's to be considered reasonable.

Retrospectively, the last year delivered a decent 8.4% gain to the company's revenues. The latest three year period has also seen an excellent 53% overall rise in revenue, aided somewhat by its short-term performance. So we can start by confirming that the company has done a great job of growing revenues over that time.

Comparing that recent medium-term revenue trajectory with the industry's one-year growth forecast of 5.9% shows it's noticeably more attractive.

In light of this, it's curious that Taeyang Metal Industrial's P/S sits in line with the majority of other companies. Apparently some shareholders believe the recent performance is at its limits and have been accepting lower selling prices.

The Final Word

With its share price dropping off a cliff, the P/S for Taeyang Metal Industrial looks to be in line with the rest of the Auto Components industry. Using the price-to-sales ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

To our surprise, Taeyang Metal Industrial revealed its three-year revenue trends aren't contributing to its P/S as much as we would have predicted, given they look better than current industry expectations. It'd be fair to assume that potential risks the company faces could be the contributing factor to the lower than expected P/S. At least the risk of a price drop looks to be subdued if recent medium-term revenue trends continue, but investors seem to think future revenue could see some volatility.

You should always think about risks. Case in point, we've spotted 3 warning signs for Taeyang Metal Industrial you should be aware of, and 1 of them is concerning.

If companies with solid past earnings growth is up your alley, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.