Subdued Growth No Barrier To HanWool Materials Science, Inc. (KOSDAQ:091440) With Shares Advancing 59%

HanWool Materials Science, Inc. (KOSDAQ:091440) shareholders are no doubt pleased to see that the share price has bounced 59% in the last month, although it is still struggling to make up recently lost ground. Still, the 30-day jump doesn't change the fact that longer term shareholders have seen their stock decimated by the 70% share price drop in the last twelve months.

After such a large jump in price, given around half the companies in Korea's Communications industry have price-to-sales ratios (or "P/S") below 0.8x, you may consider HanWool Materials Science as a stock to avoid entirely with its 4.3x P/S ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly elevated P/S.

View our latest analysis for HanWool Materials Science

How HanWool Materials Science Has Been Performing

For instance, HanWool Materials Science's receding revenue in recent times would have to be some food for thought. Perhaps the market believes the company can do enough to outperform the rest of the industry in the near future, which is keeping the P/S ratio high. However, if this isn't the case, investors might get caught out paying too much for the stock.

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 HanWool Materials Science's earnings, revenue and cash flow.

Do Revenue Forecasts Match The High P/S Ratio?

HanWool Materials Science's P/S ratio would be typical for a company that's expected to deliver very strong growth, and importantly, perform much better than the industry.

Retrospectively, the last year delivered a frustrating 22% 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 35% 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 38% over the next year, which really puts the company's recent medium-term revenue decline into perspective.

With this information, we find it concerning that HanWool Materials Science is trading at a P/S higher than 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. 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.

The Bottom Line On HanWool Materials Science's P/S

Shares in HanWool Materials Science have seen a strong upwards swing lately, which has really helped boost its P/S figure. 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.

Our examination of HanWool Materials Science 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. With a revenue decline on investors' minds, the likelihood of a souring sentiment is quite high which could send the P/S back in line with what we'd expect. 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.

Before you settle on your opinion, we've discovered 4 warning signs for HanWool Materials Science (3 are significant!) that you should be aware of.

If you're unsure about the strength of HanWool Materials Science's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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