Hana Technology Co., Ltd. (KOSDAQ:299030) shares have fallen 31%, and more unpleasant surprises may be in store.

of Hana Technology Co., Ltd. (KOSDAQ:299030) shares have performed very poorly in the last month, falling by 31%, and this recent drop caps a disastrous 12 months for shareholders, who lost 57% in that time.

Even after such a steep decline in its share price, Hana Technology, with a P/S multiple of 2.5, may be considered a stock to avoid, given that nearly half of the companies operating in South Korea’s machinery industry have a P/S multiple below 1. That said, we need to dig a little deeper to determine whether there is a rational basis for the rising P/S ratio.

Check out our latest analysis for Hana Technology

How has Hana Technology been performing recently?

Recently, Hana Technology has been relatively underperforming, with poor earnings growth compared to most other companies. One possibility is that the price-to-earnings multiple is high because investors believe this lackluster earnings performance will improve significantly. However, if this isn’t the case, investors may be overpaying for the stock.

If you want to know what analysts are predicting for the future, check out our free Report on Hana Technology.

Do earnings forecasts align with a high P/S ratio?

The only time you’d be truly comfortable seeing a P/S as high as Hana Technology’s is if the company’s growth is on track to outperform the industry.

Looking back, the company’s sales last year were roughly in line with the year before that, but the years prior to that were strong, allowing it to deliver impressive combined revenue growth of 31% over the past three years.So while shareholders will be happy, they’ll also have some questions to think about looking at the past 12 months.

Turning to the outlook, the only analyst watching the company predicts that it will grow 29% next year. While the industry as a whole is expected to grow 33%, the company’s revenue is expected to stagnate.

This information raises concerns that Hana Technology is trading at a higher P/S than the industry. It appears that many of the company’s investors are much more bullish than analysts indicate and are not willing to exit the stock at any price. Only the boldest would consider these prices sustainable, as this level of earnings growth will likely eventually weigh on the share price.

What can we learn from Hana Technology’s P/S?

Hana Technology’s P/S is still rising somewhat, even if the same can’t be said for the recent share price. While it’s not wise to use the price-to-sales multiple alone to decide whether or not to sell a stock, it can be a practical indicator of a company’s future potential.

We conclude that Hana Technology’s expected growth rate is lower than the wider industry, which is why the company’s current P/S is much higher than expected. If the earnings outlook weakens, the stock will be at much higher risk of falling, causing the P/S number to fall again. At this price level, investors should remain cautious, especially if conditions don’t improve.

Before you form an opinion, we found out 2 warning signs for Hana Technology Something you should know.

If you like companies with a history of strong earnings growthyou might want to take a look at this free A collection of other companies with high earnings growth and low P/E ratios.

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This article by Simply Wall St is general in nature. We use only unbiased methodologies to provide commentary based on historical data and analyst forecasts, and our articles are not intended as financial advice. It is not a recommendation to buy or sell stocks, and does not take into account your objectives, or your financial situation. We seek to provide long-term focused analysis driven by fundamental data. Note that our analysis may not take into account the latest price sensitive company announcements or qualitative material. Simply Wall St has no position in any of the stocks mentioned.

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