Daisho Microline Holdings Limited (HKG:567) shareholders have had their patience rewarded with a 38% share price jump in the last month. Not all shareholders will be feeling jubilant, since the share price is still down a very disappointing 39% in the last twelve months.
After such a large jump in price, when almost half of the companies in Hong Kong's Electronic industry have price-to-sales ratios (or "P/S") below 0.4x, you may consider Daisho Microline Holdings as a stock probably not worth researching with its 1.7x P/S ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the elevated P/S.
Check out our latest analysis for Daisho Microline Holdings
What Does Daisho Microline Holdings' P/S Mean For Shareholders?
We'd have to say that with no tangible growth over the last year, Daisho Microline Holdings' revenue has been unimpressive. It might be that many are expecting an improvement to the uninspiring revenue performance over the coming period, which has kept the P/S from collapsing. 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 Daisho Microline Holdings will help you shine a light on its historical performance.Is There Enough Revenue Growth Forecasted For Daisho Microline Holdings?
Daisho Microline Holdings' P/S ratio would be typical for a company that's expected to deliver solid growth, and importantly, perform better than the industry.
Retrospectively, the last year delivered virtually the same number to the company's top line as the year before. Still, the latest three year period was better as it's delivered a decent 26% overall rise in revenue. So it appears to us that the company has had a mixed result in terms of growing revenue over that time.
Comparing the recent medium-term revenue trends against the industry's one-year growth forecast of 20% shows it's noticeably less attractive.
In light of this, it's alarming that Daisho Microline Holdings' P/S sits above the majority of other companies. It seems most investors are ignoring the fairly limited recent growth rates and are hoping for a turnaround in the company's business prospects. There's a good chance existing shareholders are setting themselves up for future disappointment if the P/S falls to levels more in line with recent growth rates.
The Bottom Line On Daisho Microline Holdings' P/S
The large bounce in Daisho Microline Holdings' shares has lifted the company's P/S handsomely. 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.
Our examination of Daisho Microline Holdings revealed its poor three-year revenue trends aren't detracting from the P/S as much as we though, given they look worse than current industry expectations. When we observe slower-than-industry revenue growth alongside a high P/S ratio, we assume there to be a significant risk of the share price decreasing, which would result in a lower P/S ratio. Unless there is a significant improvement in the company's medium-term performance, it will be difficult to prevent the P/S ratio from declining to a more reasonable level.
Plus, you should also learn about these 4 warning signs we've spotted with Daisho Microline Holdings (including 2 which are potentially serious).
It's important to make sure you look for a great company, not just the first idea you come across. So if growing profitability aligns with your idea of a great company, take a peek at this free list of interesting companies with strong recent earnings growth (and a low P/E).
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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.
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