HB Technology CO.,LTD. (KOSDAQ:078150) Stock Rockets 26% As Investors Are Less Pessimistic Than Expected

HB Technology CO.,LTD. (KOSDAQ:078150) shareholders are no doubt pleased to see that the share price has bounced 26% in the last month, although it is still struggling to make up recently lost ground. Unfortunately, the gains of the last month did little to right the losses of the last year with the stock still down 10% over that time.

After such a large jump in price, you could be forgiven for thinking HB TechnologyLTD is a stock not worth researching with a price-to-sales ratios (or "P/S") of 1.8x, considering almost half the companies in Korea's Semiconductor industry have P/S ratios below 1.2x. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the elevated P/S.

View our latest analysis for HB TechnologyLTD

What Does HB TechnologyLTD's Recent Performance Look Like?

For instance, HB TechnologyLTD's receding revenue in recent times would have to be some food for thought. It might be that many expect the company to still outplay most other companies over the coming period, which has kept the P/S from collapsing. 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 HB TechnologyLTD will help you shine a light on its historical performance.

Is There Enough Revenue Growth Forecasted For HB TechnologyLTD?

The only time you'd be truly comfortable seeing a P/S as high as HB TechnologyLTD's is when the company's growth is on track to outshine the industry.

Taking a look back first, the company's revenue growth last year wasn't something to get excited about as it posted a disappointing decline of 36%. This means it has also seen a slide in revenue over the longer-term as revenue is down 42% in total over the last three years. Therefore, it's fair to say the revenue growth recently has been undesirable for the company.

In contrast to the company, the rest of the industry is expected to grow by 45% over the next year, which really puts the company's recent medium-term revenue decline into perspective.

With this in mind, we find it worrying that HB TechnologyLTD's P/S exceeds that of its industry peers. It seems most investors are ignoring the recent poor growth rate and are hoping for a turnaround in the company's business prospects. Only the boldest would assume these prices are sustainable as a continuation of recent revenue trends is likely to weigh heavily on the share price eventually.

The Final Word

HB TechnologyLTD's P/S is on the rise since its shares have risen strongly. It's argued the price-to-sales ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

We've established that HB TechnologyLTD currently trades on a much higher than expected P/S since its recent revenues have been in decline over the medium-term. Right now we aren't comfortable with the high P/S as this revenue performance is highly unlikely to support such positive sentiment for long. If recent medium-term revenue trends continue, it will place shareholders' investments at significant risk and potential investors in danger of paying an excessive premium.

Having said that, be aware HB TechnologyLTD is showing 1 warning sign in our investment analysis, you should know about.

If you're unsure about the strength of HB TechnologyLTD's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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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.