HAISUNG TPC Co., Ltd.'s (KOSDAQ:059270) 45% Dip Still Leaving Some Shareholders Feeling Restless Over Its P/SRatio

HAISUNG TPC Co., Ltd. (KOSDAQ:059270) shares have retraced a considerable 45% in the last month, reversing a fair amount of their solid recent performance. Looking back over the past twelve months the stock has been a solid performer regardless, with a gain of 10%.

Even after such a large drop in price, you could still be forgiven for thinking HAISUNG TPC is a stock to steer clear of with a price-to-sales ratios (or "P/S") of 7.9x, considering almost half the companies in Korea's Machinery industry have P/S ratios below 1x. However, the P/S might be quite high for a reason and it requires further investigation to determine if it's justified.

View our latest analysis for HAISUNG TPC

How Has HAISUNG TPC Performed Recently?

As an illustration, revenue has deteriorated at HAISUNG TPC over the last year, which is not ideal at all. Perhaps the market believes the company can do enough to outperform the rest of the industry in the near future, which is keeping the P/S ratio high. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

Want the full picture on earnings, revenue and cash flow for the company? Then our free report on HAISUNG TPC will help you shine a light on its historical performance.

Is There Enough Revenue Growth Forecasted For HAISUNG TPC?

There's an inherent assumption that a company should far outperform the industry for P/S ratios like HAISUNG TPC's to be considered reasonable.

Retrospectively, the last year delivered a frustrating 1.7% decrease to the company's top line. The last three years don't look nice either as the company has shrunk revenue by 16% in aggregate. Therefore, it's fair to say the revenue growth recently has been undesirable for the company.

Weighing that medium-term revenue trajectory against the broader industry's one-year forecast for expansion of 31% shows it's an unpleasant look.

With this information, we find it concerning that HAISUNG TPC is trading at a P/S higher than the industry. Apparently many investors in the company are way more bullish than recent times would indicate and aren't willing to let go of their stock at any price. There's a very good chance existing shareholders are setting themselves up for future disappointment if the P/S falls to levels more in line with the recent negative growth rates.

What Does HAISUNG TPC's P/S Mean For Investors?

Even after such a strong price drop, HAISUNG TPC's P/S still exceeds the industry median significantly. 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.

We've established that HAISUNG TPC currently trades on a much higher than expected P/S since its recent revenues have been in decline over the medium-term. When we see revenue heading backwards and underperforming the industry forecasts, we feel the possibility of the share price declining is very real, bringing the P/S back into the realm of reasonability. Should recent medium-term revenue trends persist, it would pose a significant risk to existing shareholders' investments and prospective investors will have a hard time accepting the current value of the stock.

It's always necessary to consider the ever-present spectre of investment risk. We've identified 4 warning signs with HAISUNG TPC (at least 2 which are a bit concerning), and understanding these should be part of your investment process.

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.

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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.