There's Reason For Concern Over Lightron Fiber-Optic Devices Inc.'s (KOSDAQ:069540) Massive 44% Price Jump

Lightron Fiber-Optic Devices Inc. (KOSDAQ:069540) shareholders would be excited to see that the share price has had a great month, posting a 44% gain and recovering from prior weakness. Not all shareholders will be feeling jubilant, since the share price is still down a very disappointing 27% in the last twelve months.

Following the firm bounce in price, when almost half of the companies in Korea's Communications industry have price-to-sales ratios (or "P/S") below 0.9x, you may consider Lightron Fiber-Optic Devices as a stock not worth researching with its 4x P/S ratio. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's so lofty.

See our latest analysis for Lightron Fiber-Optic Devices

How Lightron Fiber-Optic Devices Has Been Performing

As an illustration, revenue has deteriorated at Lightron Fiber-Optic Devices over the last year, which is not ideal at all. 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.

We don't have analyst forecasts, but you can see how recent trends are setting up the company for the future by checking out our free report on Lightron Fiber-Optic Devices' earnings, revenue and cash flow.

Is There Enough Revenue Growth Forecasted For Lightron Fiber-Optic Devices?

There's an inherent assumption that a company should far outperform the industry for P/S ratios like Lightron Fiber-Optic Devices' to be considered reasonable.

Retrospectively, the last year delivered a frustrating 31% decrease to the company's top line. This means it has also seen a slide in revenue over the longer-term as revenue is down 58% in total over the last three years. So unfortunately, we have to acknowledge that the company has not done a great job of growing revenue over that time.

In contrast to the company, the rest of the industry is expected to grow by 40% 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 Lightron Fiber-Optic Devices' 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. There's a very good chance existing shareholders are setting themselves up for future disappointment if the P/S falls to levels more in line with the recent negative growth rates.

What We Can Learn From Lightron Fiber-Optic Devices' P/S?

Lightron Fiber-Optic Devices' P/S has grown nicely over the last month thanks to a handy boost in the 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.

Our examination of Lightron Fiber-Optic Devices revealed its shrinking revenue over the medium-term isn't resulting in a P/S as low as we expected, given the industry is set to grow. 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. Unless the the circumstances surrounding the recent medium-term improve, it wouldn't be wrong to expect a a difficult period ahead for the company's shareholders.

There are also other vital risk factors to consider and we've discovered 4 warning signs for Lightron Fiber-Optic Devices (3 are a bit unpleasant!) that you should be aware of before investing here.

Of course, profitable companies with a history of great earnings growth are generally safer bets. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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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.