To the annoyance of some shareholders, Golden Solar New Energy Technology Holdings Limited (HKG:1121) shares are down a considerable 28% in the last month, which continues a horrid run for the company. Instead of being rewarded, shareholders who have already held through the last twelve months are now sitting on a 43% share price drop.
Although its price has dipped substantially, you could still be forgiven for thinking Golden Solar New Energy Technology Holdings is a stock to steer clear of with a price-to-sales ratios (or "P/S") of 22.5x, considering almost half the companies in Hong Kong's Luxury industry have P/S ratios below 0.6x. However, the P/S might be quite high for a reason and it requires further investigation to determine if it's justified.
Check out our latest analysis for Golden Solar New Energy Technology Holdings
How Has Golden Solar New Energy Technology Holdings Performed Recently?
The revenue growth achieved at Golden Solar New Energy Technology Holdings over the last year would be more than acceptable for most companies. 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.
Want the full picture on earnings, revenue and cash flow for the company? Then our free report on Golden Solar New Energy Technology Holdings will help you shine a light on its historical performance.Is There Enough Revenue Growth Forecasted For Golden Solar New Energy Technology Holdings?
The only time you'd be truly comfortable seeing a P/S as steep as Golden Solar New Energy Technology Holdings' is when the company's growth is on track to outshine the industry decidedly.
Retrospectively, the last year delivered a decent 7.7% gain to the company's revenues. Pleasingly, revenue has also lifted 164% in aggregate from three years ago, partly thanks to the last 12 months of growth. So we can start by confirming that the company has done a great job of growing revenues over that time.
Comparing that recent medium-term revenue trajectory with the industry's one-year growth forecast of 13% shows it's noticeably more attractive.
With this information, we can see why Golden Solar New Energy Technology Holdings is trading at such a high P/S compared to the industry. It seems most investors are expecting this strong growth to continue and are willing to pay more for the stock.
The Final Word
Golden Solar New Energy Technology Holdings' shares may have suffered, but its P/S remains high. While the price-to-sales ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of revenue expectations.
As we suspected, our examination of Golden Solar New Energy Technology Holdings revealed its three-year revenue trends are contributing to its high P/S, given they look better than current industry expectations. Right now shareholders are comfortable with the P/S as they are quite confident revenue aren't under threat. If recent medium-term revenue trends continue, it's hard to see the share price falling strongly in the near future under these circumstances.
You need to take note of risks, for example - Golden Solar New Energy Technology Holdings has 2 warning signs (and 1 which is concerning) we think you should know about.
If you're unsure about the strength of Golden Solar New Energy Technology Holdings' business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.
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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.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com