Hyulim Networks Co., Ltd.'s (KOSDAQ:192410) 36% Share Price Plunge Could Signal Some Risk

Unfortunately for some shareholders, the Hyulim Networks Co., Ltd. (KOSDAQ:192410) share price has dived 36% in the last thirty days, prolonging recent pain. Longer-term shareholders will rue the drop in the share price, since it's now virtually flat for the year after a promising few quarters.

Even after such a large drop in price, there still wouldn't be many who think Hyulim Networks' price-to-sales (or "P/S") ratio of 1.2x is worth a mention when the median P/S in Korea's Communications industry is similar at about 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.

Check out our latest analysis for Hyulim Networks

What Does Hyulim Networks' P/S Mean For Shareholders?

As an illustration, revenue has deteriorated at Hyulim Networks over the last year, which is not ideal at all. One possibility is that the P/S is moderate because investors think the company might still do enough to be in line with the broader industry in the near future. If not, then existing shareholders may be a little nervous about the viability of the share price.

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 Hyulim Networks' earnings, revenue and cash flow.

How Is Hyulim Networks' Revenue Growth Trending?

There's an inherent assumption that a company should be matching the industry for P/S ratios like Hyulim Networks' to be considered reasonable.

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 9.3%. This means it has also seen a slide in revenue over the longer-term as revenue is down 38% in total over the last three years. Accordingly, shareholders would have felt downbeat about the medium-term rates of revenue growth.

Weighing that medium-term revenue trajectory against the broader industry's one-year forecast for expansion of 39% shows it's an unpleasant look.

With this in mind, we find it worrying that Hyulim Networks' P/S exceeds that of its industry peers. Apparently many investors in the company are way less bearish than recent times would indicate and aren't willing to let go of their stock right now. Only the boldest would assume these prices are sustainable as a continuation of recent revenue trends is likely to weigh on the share price eventually.

What We Can Learn From Hyulim Networks' P/S?

With its share price dropping off a cliff, the P/S for Hyulim Networks looks to be in line with the rest of the Communications industry. We'd say the price-to-sales ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

Our look at Hyulim Networks revealed its shrinking revenues over the medium-term haven't impacted the P/S as much as we anticipated, given the industry is set to grow. Even though it matches the industry, we're uncomfortable with the current P/S ratio, as this dismal revenue performance is unlikely to support a more positive sentiment for long. Unless the recent medium-term conditions improve markedly, investors will have a hard time accepting the share price as fair value.

Don't forget that there may be other risks. For instance, we've identified 4 warning signs for Hyulim Networks (2 don't sit too well with us) you should be aware of.

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

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.