Unfortunately for some shareholders, the New Concepts Holdings Limited (HKG:2221) share price has dived 35% in the last thirty days, prolonging recent pain. The recent drop completes a disastrous twelve months for shareholders, who are sitting on a 77% loss during that time.
Even after such a large drop in price, there still wouldn't be many who think New Concepts Holdings' price-to-sales (or "P/S") ratio of 0.3x is worth a mention when it essentially matches the median P/S in Hong Kong's Construction industry. While this might not raise any eyebrows, if the P/S ratio is not justified investors could be missing out on a potential opportunity or ignoring looming disappointment.
View our latest analysis for New Concepts Holdings
What Does New Concepts Holdings' P/S Mean For Shareholders?
New Concepts Holdings has been doing a good job lately as it's been growing revenue at a solid pace. One possibility is that the P/S is moderate because investors think this respectable revenue growth might not be enough to outperform the broader industry in the near future. If that doesn't eventuate, then existing shareholders probably aren't too pessimistic about the future direction of the share price.
Want the full picture on earnings, revenue and cash flow for the company? Then our free report on New Concepts Holdings will help you shine a light on its historical performance.How Is New Concepts Holdings' Revenue Growth Trending?
New Concepts Holdings' P/S ratio would be typical for a company that's only expected to deliver moderate growth, and importantly, perform in line with the industry.
If we review the last year of revenue growth, the company posted a terrific increase of 15%. Revenue has also lifted 6.2% in aggregate from three years ago, mostly thanks to the last 12 months of growth. So we can start by confirming that the company has actually done a good job of growing revenue over that time.
Comparing that to the industry, which is predicted to deliver 10% growth in the next 12 months, the company's momentum is weaker, based on recent medium-term annualised revenue results.
In light of this, it's curious that New Concepts Holdings' P/S sits in line with the majority of other companies. Apparently many investors in the company are less bearish than recent times would indicate and aren't willing to let go of their stock right now. They may be setting themselves up for future disappointment if the P/S falls to levels more in line with recent growth rates.
The Bottom Line On New Concepts Holdings' P/S
With its share price dropping off a cliff, the P/S for New Concepts Holdings looks to be in line with the rest of the Construction industry. 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.
Our examination of New Concepts Holdings revealed its poor three-year revenue trends aren't resulting in a lower P/S as per our expectations, given they look worse than current industry outlook. Right now we are uncomfortable with the P/S as this revenue performance isn't likely to support a more positive sentiment for long. 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.
Before you take the next step, you should know about the 5 warning signs for New Concepts Holdings that we have uncovered.
If you're unsure about the strength of New Concepts 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.
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