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華爾街日報Hanwha Solutions Corporation's (KRX:009830) Price Is Out Of Tune With Revenues
It's not a stretch to say that Hanwha Solutions Corporation's (KRX:009830) price-to-sales (or "P/S") ratio of 0.3x right now seems quite "middle-of-the-road" for companies in the Chemicals industry in Korea, where the median P/S ratio is around 0.7x. 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.
View our latest analysis for Hanwha Solutions
What Does Hanwha Solutions' Recent Performance Look Like?
Hanwha Solutions certainly has been doing a good job lately as it's been growing revenue more than most other companies. One possibility is that the P/S ratio is moderate because investors think this strong revenue performance might be about to tail off. If you like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's not quite in favour.
Want the full picture on analyst estimates for the company? Then our free report on Hanwha Solutions will help you uncover what's on the horizon.How Is Hanwha Solutions' Revenue Growth Trending?
The only time you'd be comfortable seeing a P/S like Hanwha Solutions' is when the company's growth is tracking the industry closely.
Taking a look back first, we see that the company grew revenue by an impressive 24% last year. As a result, it also grew revenue by 16% in total over the last three years. Accordingly, shareholders would have probably been satisfied with the medium-term rates of revenue growth.
Shifting to the future, estimates from the analysts covering the company suggest revenue growth is heading into negative territory, declining 1.7% over the next year. With the industry predicted to deliver 14% growth, that's a disappointing outcome.
With this in consideration, we think it doesn't make sense that Hanwha Solutions' P/S is closely matching its industry peers. It seems most investors are hoping for a turnaround in the company's business prospects, but the analyst cohort is not so confident this will happen. There's a good chance these shareholders are setting themselves up for future disappointment if the P/S falls to levels more in line with the negative growth outlook.
The Bottom Line On Hanwha Solutions' P/S
Using the price-to-sales ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.
While Hanwha Solutions' P/S isn't anything out of the ordinary for companies in the industry, we didn't expect it given forecasts of revenue decline. With this in mind, we don't feel the current P/S is justified as declining revenues are unlikely to support a more positive sentiment for long. If the declining revenues were to materialize in the form of a declining share price, shareholders will be feeling the pinch.
There are also other vital risk factors to consider before investing and we've discovered 1 warning sign for Hanwha Solutions that you should be aware of.
If strong companies turning a profit tickle your fancy, then you'll want to check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).
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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.