Why Investors Shouldn't Be Surprised By AeroSpace Technology of Korea Inc.'s (KOSDAQ:067390) 29% Share Price Plunge

AeroSpace Technology of Korea Inc. (KOSDAQ:067390) shares have retraced a considerable 29% in the last month, reversing a fair amount of their solid recent performance. To make matters worse, the recent drop has wiped out a year's worth of gains with the share price now back where it started a year ago.

In spite of the heavy fall in price, when close to half the companies operating in Korea's Aerospace & Defense industry have price-to-sales ratios (or "P/S") above 2.1x, you may still consider AeroSpace Technology of Korea as an enticing stock to check out with its 1.4x P/S ratio. However, the P/S might be low for a reason and it requires further investigation to determine if it's justified.

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See our latest analysis for AeroSpace Technology of Korea

How Has AeroSpace Technology of Korea Performed Recently?

As an illustration, revenue has deteriorated at AeroSpace Technology of Korea over the last year, which is not ideal at all. It might be that many expect the disappointing revenue performance to continue or accelerate, which has repressed the P/S. 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 out of favour.

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

Is There Any Revenue Growth Forecasted For AeroSpace Technology of Korea?

There's an inherent assumption that a company should underperform the industry for P/S ratios like AeroSpace Technology of Korea's to be considered reasonable.

Retrospectively, the last year delivered a frustrating 6.2% decrease to the company's top line. Still, the latest three year period has seen an excellent 122% overall rise in revenue, in spite of its unsatisfying short-term performance. Accordingly, while they would have preferred to keep the run going, shareholders would definitely welcome the medium-term rates of revenue growth.

Comparing the recent medium-term revenue trends against the industry's one-year growth forecast of 81% shows it's noticeably less attractive.

In light of this, it's understandable that AeroSpace Technology of Korea's P/S sits below the majority of other companies. It seems most investors are expecting to see the recent limited growth rates continue into the future and are only willing to pay a reduced amount for the stock.

What We Can Learn From AeroSpace Technology of Korea's P/S?

The southerly movements of AeroSpace Technology of Korea's shares means its P/S is now sitting at a pretty low level. Typically, we'd caution against reading too much into price-to-sales ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

As we suspected, our examination of AeroSpace Technology of Korea revealed its three-year revenue trends are contributing to its low P/S, given they look worse than current industry expectations. Right now shareholders are accepting the low P/S as they concede future revenue probably won't provide any pleasant surprises. Unless the recent medium-term conditions improve, they will continue to form a barrier for the share price around these levels.

We don't want to rain on the parade too much, but we did also find 3 warning signs for AeroSpace Technology of Korea that you need to be mindful of.

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.