Optima Automobile Group Holdings Limited (HKG:8418) shares have had a horrible month, losing 25% after a relatively good period beforehand. Instead of being rewarded, shareholders who have already held through the last twelve months are now sitting on a 34% share price drop.
Although its price has dipped substantially, you could still be forgiven for feeling indifferent about Optima Automobile Group Holdings' P/S ratio of 0.8x, since the median price-to-sales (or "P/S") ratio for the Specialty Retail industry in Hong Kong is also close to 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 Optima Automobile Group Holdings
How Optima Automobile Group Holdings Has Been Performing
Optima Automobile Group 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 Optima Automobile Group Holdings will help you shine a light on its historical performance.What Are Revenue Growth Metrics Telling Us About The P/S?
In order to justify its P/S ratio, Optima Automobile Group Holdings would need to produce growth that's similar to the industry.
Retrospectively, the last year delivered an exceptional 29% gain to the company's top line. The latest three year period has also seen an incredible overall rise in revenue, aided by its incredible short-term performance. Accordingly, shareholders would have been over the moon with those medium-term rates of revenue growth.
Comparing that recent medium-term revenue trajectory with the industry's one-year growth forecast of 12% shows it's noticeably more attractive.
With this information, we find it interesting that Optima Automobile Group Holdings is trading at a fairly similar P/S compared to the industry. Apparently some shareholders believe the recent performance is at its limits and have been accepting lower selling prices.
The Bottom Line On Optima Automobile Group Holdings' P/S
With its share price dropping off a cliff, the P/S for Optima Automobile Group Holdings looks to be in line with the rest of the Specialty Retail industry. 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 didn't quite envision Optima Automobile Group Holdings' P/S sitting in line with the wider industry, considering the revenue growth over the last three-year is higher than the current industry outlook. There could be some unobserved threats to revenue preventing the P/S ratio from matching this positive performance. At least the risk of a price drop looks to be subdued if recent medium-term revenue trends continue, but investors seem to think future revenue could see some volatility.
You need to take note of risks, for example - Optima Automobile Group Holdings has 2 warning signs (and 1 which is a bit unpleasant) we think you should know about.
If you're unsure about the strength of Optima Automobile Group 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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