Many Still Looking Away From HNK Machine Tool Co., Ltd. (KOSDAQ:101680) - Simply Wall St News

With a median price-to-sales (or "P/S") ratio of close to 0.9x in the Machinery industry in Korea, you could be forgiven for feeling indifferent about HNK Machine Tool Co., Ltd.'s (KOSDAQ:101680) P/S ratio of 0.4x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/S.

See our latest analysis for HNK Machine Tool

HNK Machine Tool certainly has been doing a great job lately as it's been growing its revenue at a really rapid pace. The P/S is probably moderate because investors think this strong revenue growth might not be enough to outperform the broader industry in the near future. Those who are bullish on HNK Machine Tool will be hoping that this isn't the case, so that they can pick up the stock at a lower valuation.

The only time you'd be comfortable seeing a P/S like HNK Machine Tool's 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 44% last year. The strong recent performance means it was also able to grow revenue by 226% in total over the last three years. Therefore, it's fair to say the revenue growth recently has been superb for the company.

This is in contrast to the rest of the industry, which is expected to grow by 37% over the next year, materially lower than the company's recent medium-term annualised growth rates.

In light of this, it's curious that HNK Machine Tool's P/S sits in line with the majority of other companies. Apparently some shareholders believe the recent performance is at its limits and have been accepting lower selling prices.

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 HNK Machine Tool currently trades on a lower than expected P/S since its recent three-year growth is higher than the wider industry forecast. When we see strong revenue with faster-than-industry growth, we can only assume potential risks are what might be placing pressure on the P/S ratio. It appears some are indeed anticipating revenue instability, because the persistence of these recent medium-term conditions would normally provide a boost to the share price.

You need to take note of risks, for example - HNK Machine Tool has 2 warning signs (and 1 which is a bit concerning) we think 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.

Discover if HNK Machine Tool might be undervalued or overvalued with our detailed analysis, featuring fair value estimates, potential risks, dividends, insider trades, and its financial condition.

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.

Develops, manufactures, and sells machine tools and industrial machinery in South Korea and internationally.

Mediocre balance sheet and slightly overvalued.