Taihan Fiber Optics Co., Ltd (KOSDAQ:010170) Soars 49% But It's A Story Of Risk Vs Reward

Taihan Fiber Optics Co., Ltd (KOSDAQ:010170) shares have continued their recent momentum with a 49% gain in the last month alone. Looking back a bit further, it's encouraging to see the stock is up 72% in the last year.

In spite of the firm bounce in price, you could still be forgiven for feeling indifferent about Taihan Fiber Optics' P/S ratio of 1.3x, since the median price-to-sales (or "P/S") ratio for the Communications industry in Korea is also close to 0.9x. Although, it's not wise to simply ignore the P/S without explanation as investors may be disregarding a distinct opportunity or a costly mistake.

Trump has pledged to "unleash" American oil and gas and these 15 US stocks have developments that are poised to benefit.

See our latest analysis for Taihan Fiber Optics

How Taihan Fiber Optics Has Been Performing

Taihan Fiber Optics hasn't been tracking well recently as its declining revenue compares poorly to other companies, which have seen some growth in their revenues on average. It might be that many expect the dour revenue performance to strengthen positively, which has kept the P/S from falling. If not, then existing shareholders may be a little nervous about the viability of the share price.

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Taihan Fiber Optics.

Is There Some Revenue Growth Forecasted For Taihan Fiber Optics?

In order to justify its P/S ratio, Taihan Fiber Optics would need to produce growth that's similar to 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 1.3%. The last three years don't look nice either as the company has shrunk revenue by 12% in aggregate. Accordingly, shareholders would have felt downbeat about the medium-term rates of revenue growth.

Turning to the outlook, the next year should generate growth of 46% as estimated by the only analyst watching the company. Meanwhile, the rest of the industry is forecast to only expand by 37%, which is noticeably less attractive.

With this information, we find it interesting that Taihan Fiber Optics is trading at a fairly similar P/S compared to the industry. Apparently some shareholders are skeptical of the forecasts and have been accepting lower selling prices.

The Bottom Line On Taihan Fiber Optics' P/S

Taihan Fiber Optics' stock has a lot of momentum behind it lately, which has brought its P/S level with the rest of the industry. 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.

Looking at Taihan Fiber Optics' analyst forecasts revealed that its superior revenue outlook isn't giving the boost to its P/S that we would've expected. When we see a strong revenue outlook, with growth outpacing the industry, we can only assume potential uncertainty around these figures are what might be placing slight pressure on the P/S ratio. It appears some are indeed anticipating revenue instability, because these conditions should normally provide a boost to the share price.

You should always think about risks. Case in point, we've spotted 4 warning signs for Taihan Fiber Optics you should be aware of.

If these risks are making you reconsider your opinion on Taihan Fiber Optics, explore our interactive list of high quality stocks to get an idea of what else is out there.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.