Investor Optimism Abounds HB Technology CO.,LTD. (KOSDAQ:078150) But Growth Is Lacking

There wouldn't be many who think HB Technology CO.,LTD.'s (KOSDAQ:078150) price-to-sales (or "P/S") ratio of 1.3x is worth a mention when the median P/S for the Semiconductor industry in Korea is similar at about 1.7x. While this might not raise any eyebrows, if the P/S ratio is not justified investors could be missing out on a potential opportunity or ignoring looming disappointment.

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What Does HB TechnologyLTD's P/S Mean For Shareholders?

Recent times have been quite advantageous for HB TechnologyLTD as its revenue has been rising very briskly. It might be that many expect the strong revenue performance to wane, which has kept the share price, and thus the P/S ratio, from rising. If that doesn't eventuate, then existing shareholders have reason to be feeling optimistic about the future direction of the share price.

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What Are Revenue Growth Metrics Telling Us About The P/S?

In order to justify its P/S ratio, HB TechnologyLTD would need to produce growth that's similar to the industry.

Taking a look back first, we see that the company grew revenue by an impressive 45% last year. Despite this strong recent growth, it's still struggling to catch up as its three-year revenue frustratingly shrank by 2.7% overall. Therefore, it's fair to say the revenue growth recently has been undesirable for the company.

Comparing that to the industry, which is predicted to deliver 42% growth in the next 12 months, the company's downward momentum based on recent medium-term revenue results is a sobering picture.

With this information, we find it concerning that HB TechnologyLTD is trading at a fairly similar P/S compared to the industry. 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 on the share price eventually.

What We Can Learn From HB TechnologyLTD's P/S?

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 find it unexpected that HB TechnologyLTD trades at a P/S ratio that is comparable to the rest of the industry, despite experiencing declining revenues during the medium-term, while the industry as a whole is expected to grow. Even though it matches the industry, we're uncomfortable with the current P/S ratio, as this dismal revenue performance is unlikely to support a more positive sentiment for long. Unless the recent medium-term conditions improve markedly, investors will have a hard time accepting the share price as fair value.

You should always think about risks. Case in point, we've spotted 1 warning sign for HB TechnologyLTD you should be aware of.

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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.