Lacklustre Performance Is Driving Taihan Fiber Optics Co., Ltd's (KOSDAQ:010170) 25% Price Drop

The Taihan Fiber Optics Co., Ltd (KOSDAQ:010170) share price has fared very poorly over the last month, falling by a substantial 25%. Instead of being rewarded, shareholders who have already held through the last twelve months are now sitting on a 44% share price drop.

After such a large drop in price, when close to 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 enticing stock to check out with its 0.4x P/S ratio. However, the P/S might be low for a reason and it requires further investigation to determine if it's justified.

View our latest analysis for Taihan Fiber Optics

How Has Taihan Fiber Optics Performed Recently?

For example, consider that Taihan Fiber Optics' financial performance has been poor lately as its revenue has been in decline. Perhaps the market believes the recent revenue performance isn't good enough to keep up the industry, causing the P/S ratio to suffer. 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.

Although there are no analyst estimates available for Taihan Fiber Optics, take a look at this free data-rich visualisation to see how the company stacks up on earnings, revenue and cash flow.

How Is Taihan Fiber Optics' Revenue Growth Trending?

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.

In reviewing the last year of financials, we were disheartened to see the company's revenues fell to the tune of 29%. Unfortunately, that's brought it right back to where it started three years ago with revenue growth being virtually non-existent overall during that time. So it appears to us that the company has had a mixed result in terms of growing revenue over that time.

Comparing the recent medium-term revenue trends against the industry's one-year growth forecast of 35% 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. Apparently many shareholders weren't comfortable holding on to something they believe will continue to trail the wider industry.

What We Can Learn From Taihan Fiber Optics' P/S?

The southerly movements of Taihan Fiber Optics' shares means its P/S is now sitting at a pretty low level. Generally, our preference is to limit the use of the price-to-sales ratio to establishing what the market thinks about the overall health of a company.

Our examination of Taihan Fiber Optics confirms that the company's revenue trends over the past three-year years are a key factor in its low price-to-sales ratio, as we suspected, given they fall short of current industry expectations. Right now shareholders are accepting the low P/S as they concede future revenue probably won't provide any pleasant surprises. If recent medium-term revenue trends continue, it's hard to see the share price experience a reversal of fortunes anytime soon.

It's always necessary to consider the ever-present spectre of investment risk. We've identified 3 warning signs with Taihan Fiber Optics (at least 1 which is a bit unpleasant), and understanding them should be part of your investment process.

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.