Investors Interested In Hanon Systems' (KRX:018880) Revenues

With a median price-to-sales (or "P/S") ratio of close to 0.2x in the Auto Components industry in Korea, you could be forgiven for feeling indifferent about Hanon Systems' (KRX:018880) P/S ratio, which comes in at about the same. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/S.

Check out our latest analysis for Hanon Systems

How Has Hanon Systems Performed Recently?

Hanon Systems' revenue growth of late has been pretty similar to most other companies. It seems that many are expecting the mediocre revenue performance to persist, which has held the P/S ratio back. If you like the company, you'd be hoping this can at least be maintained so that you could pick up some stock while it's not quite in favour.

Want the full picture on analyst estimates for the company? Then our free report on Hanon Systems will help you uncover what's on the horizon.

Do Revenue Forecasts Match The P/S Ratio?

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

Taking a look back first, we see that the company managed to grow revenues by a handy 7.1% last year. Pleasingly, revenue has also lifted 36% in aggregate from three years ago, partly thanks to the last 12 months of growth. Accordingly, shareholders would have definitely welcomed those medium-term rates of revenue growth.

Looking ahead now, revenue is anticipated to climb by 5.0% during the coming year according to the analysts following the company. Meanwhile, the rest of the industry is forecast to expand by 3.3%, which is not materially different.

With this in mind, it makes sense that Hanon Systems' P/S is closely matching its industry peers. Apparently shareholders are comfortable to simply hold on while the company is keeping a low profile.

The Final Word

We'd say the price-to-sales ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

A Hanon Systems' P/S seems about right to us given the knowledge that analysts are forecasting a revenue outlook that is similar to the Auto Components industry. At this stage investors feel the potential for an improvement or deterioration in revenue isn't great enough to push P/S in a higher or lower direction. Unless these conditions change, they will continue to support the share price at these levels.

Having said that, be aware Hanon Systems is showing 3 warning signs in our investment analysis, and 2 of those are a bit concerning.

If strong companies turning a profit tickle your fancy, then you'll want to check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).

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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.