Benign Growth For Taihan Fiber Optics Co., Ltd (KOSDAQ:010170) Underpins Stock's 37% Plummet

Taihan Fiber Optics Co., Ltd (KOSDAQ:010170) shareholders won't be pleased to see that the share price has had a very rough month, dropping 37% and undoing the prior period's positive performance. Instead of being rewarded, shareholders who have already held through the last twelve months are now sitting on a 43% share price drop.

Following the heavy fall in price, considering around half the companies operating in Korea's Communications industry have price-to-sales ratios (or "P/S") above 0.9x, you may consider Taihan Fiber Optics as an solid investment opportunity with its 0.3x P/S ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/S.

View our latest analysis for Taihan Fiber Optics

How Taihan Fiber Optics Has Been Performing

For instance, Taihan Fiber Optics' receding revenue in recent times would have to be some food for thought. It might be that many expect the disappointing revenue performance to continue or accelerate, which has repressed the P/S. However, if this doesn't eventuate then existing shareholders may be feeling optimistic about the future direction of the share price.

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

Is There Any Revenue Growth Forecasted For Taihan Fiber Optics?

The only time you'd be truly comfortable seeing a P/S as low as Taihan Fiber Optics' is when the company's growth is on track to lag 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 26%. This has soured the latest three-year period, which nevertheless managed to deliver a decent 8.1% overall rise in revenue. Accordingly, while they would have preferred to keep the run going, shareholders would be roughly satisfied with the medium-term rates of revenue growth.

Comparing the recent medium-term revenue trends against the industry's one-year growth forecast of 36% shows it's noticeably less attractive.

With this in consideration, it's easy to understand why Taihan Fiber Optics' P/S falls short of the mark set by its industry peers. 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 Does Taihan Fiber Optics' P/S Mean For Investors?

Taihan Fiber Optics' P/S has taken a dip along with its share price. While the price-to-sales ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of revenue expectations.

As we suspected, our examination of Taihan Fiber Optics revealed its three-year revenue trends are contributing to its low P/S, given they look worse than current industry expectations. At this stage investors feel the potential for an improvement in revenue isn't great enough to justify a higher P/S ratio. Unless the recent medium-term conditions improve, they will continue to form a barrier for the share price around these levels.

You should always think about risks. Case in point, we've spotted 3 warning signs for Taihan Fiber Optics you should be aware of, and 2 of them 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.