Risks Still Elevated At These Prices As HUMAN TECHNOLOGY Co., Ltd (KOSDAQ:175140) Shares Dive 29%

HUMAN TECHNOLOGY Co., Ltd (KOSDAQ:175140) shareholders won't be pleased to see that the share price has had a very rough month, dropping 29% and undoing the prior period's positive performance. The drop over the last 30 days has capped off a tough year for shareholders, with the share price down 28% in that time.

Even after such a large drop 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 still consider HUMAN TECHNOLOGY as a stock probably not worth researching with its 2.4x P/S ratio. However, the P/S might be high for a reason and it requires further investigation to determine if it's justified.

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Check out our latest analysis for HUMAN TECHNOLOGY

What Does HUMAN TECHNOLOGY's Recent Performance Look Like?

The revenue growth achieved at HUMAN TECHNOLOGY over the last year would be more than acceptable for most companies. One possibility is that the P/S ratio is high because investors think this respectable revenue growth will be enough to outperform the broader industry in the near future. 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 HUMAN TECHNOLOGY's earnings, revenue and cash flow.

Is There Enough Revenue Growth Forecasted For HUMAN TECHNOLOGY?

In order to justify its P/S ratio, HUMAN TECHNOLOGY would need to produce impressive growth in excess of the industry.

Retrospectively, the last year delivered an exceptional 24% gain to the company's top line. As a result, it also grew revenue by 15% in total over the last three years. Therefore, it's fair to say the revenue growth recently has been respectable for the company.

This is in contrast to the rest of the industry, which is expected to grow by 34% over the next year, materially higher than the company's recent medium-term annualised growth rates.

With this in mind, we find it worrying that HUMAN TECHNOLOGY's P/S exceeds that of its industry peers. Apparently many investors in the company are way more bullish than recent times would indicate and aren't willing to let go of their stock at any price. There's a good chance existing shareholders are setting themselves up for future disappointment if the P/S falls to levels more in line with recent growth rates.

What Does HUMAN TECHNOLOGY's P/S Mean For Investors?

Despite the recent share price weakness, HUMAN TECHNOLOGY's P/S remains higher than most other companies in the industry. 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 HUMAN TECHNOLOGY revealed its poor three-year revenue trends aren't detracting from the P/S as much as we though, given they look worse than current industry expectations. When we observe slower-than-industry revenue growth alongside a high P/S ratio, we assume there to be a significant risk of the share price decreasing, which would result in a lower P/S ratio. Unless the recent medium-term conditions improve markedly, it's very challenging to accept these the share price as being reasonable.

And what about other risks? Every company has them, and we've spotted 5 warning signs for HUMAN TECHNOLOGY (of which 2 can't be ignored!) you should know about.

If companies with solid past earnings growth is up your alley, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

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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.