Some HUMAN TECHNOLOGY Co., Ltd (KOSDAQ:175140) Shareholders Look For Exit As Shares Take 25% Pounding

HUMAN TECHNOLOGY Co., Ltd (KOSDAQ:175140) shareholders won't be pleased to see that the share price has had a very rough month, dropping 25% and undoing the prior period's positive performance. Longer-term shareholders would now have taken a real hit with the stock declining 3.1% in the last year.

Although its price has dipped substantially, given close to half the companies operating 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 to potentially avoid with its 2.5x P/S ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the elevated P/S.

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See our latest analysis for HUMAN TECHNOLOGY

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

Revenue has risen firmly for HUMAN TECHNOLOGY recently, which is pleasing to see. Perhaps the market is expecting this decent revenue performance to beat out the industry over the near term, which has kept the P/S propped up. However, if this isn't the case, investors might get caught out paying too much for the stock.

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Is There Enough Revenue Growth Forecasted For HUMAN TECHNOLOGY?

There's an inherent assumption that a company should outperform the industry for P/S ratios like HUMAN TECHNOLOGY's to be considered reasonable.

Taking a look back first, we see that the company managed to grow revenues by a handy 11% last year. Ultimately though, it couldn't turn around the poor performance of the prior period, with revenue shrinking 8.5% 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 41% 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 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 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 HUMAN TECHNOLOGY's P/S?

There's still some elevation in HUMAN TECHNOLOGY's P/S, even if the same can't be said for its share price recently. 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.

We've established that HUMAN TECHNOLOGY currently trades on a much higher than expected P/S since its recent revenues have been in decline over the medium-term. 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.

Having said that, be aware HUMAN TECHNOLOGY is showing 3 warning signs in our investment analysis, and 1 of those shouldn't be ignored.

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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.