Prosperous Future Holdings Limited (HKG:1259) shareholders are no doubt pleased to see that the share price has bounced 27% in the last month, although it is still struggling to make up recently lost ground. The last month tops off a massive increase of 126% in the last year.
Although its price has surged higher, Prosperous Future Holdings' price-to-sales (or "P/S") ratio of 0.3x might still make it look like a buy right now compared to the Personal Products industry in Hong Kong, where around half of the companies have P/S ratios above 0.8x and even P/S above 3x are quite common. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's limited.
View our latest analysis for Prosperous Future Holdings
What Does Prosperous Future Holdings' Recent Performance Look Like?
Prosperous Future Holdings has been doing a decent job lately as it's been growing revenue at a reasonable pace. It might be that many expect the respectable revenue performance to degrade, which has repressed the P/S. If that doesn't eventuate, then existing shareholders may have reason to be optimistic about the future direction of the share price.
We don't have analyst forecasts, but you can see how recent trends are setting up the company for the future by checking out our free report on Prosperous Future Holdings' earnings, revenue and cash flow.Do Revenue Forecasts Match The Low P/S Ratio?
There's an inherent assumption that a company should underperform the industry for P/S ratios like Prosperous Future Holdings' to be considered reasonable.
Taking a look back first, we see that the company managed to grow revenues by a handy 6.3% last year. Still, lamentably revenue has fallen 62% in aggregate from three years ago, which is disappointing. Accordingly, shareholders would have felt downbeat about the medium-term rates of revenue growth.
Comparing that to the industry, which is predicted to deliver 9.6% growth in the next 12 months, the company's downward momentum based on recent medium-term revenue results is a sobering picture.
In light of this, it's understandable that Prosperous Future Holdings' P/S would sit below the majority of other companies. Nonetheless, there's no guarantee the P/S has reached a floor yet with revenue going in reverse. Even just maintaining these prices could be difficult to achieve as recent revenue trends are already weighing down the shares.
The Bottom Line On Prosperous Future Holdings' P/S
The latest share price surge wasn't enough to lift Prosperous Future Holdings' P/S close to the industry median. 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.
It's no surprise that Prosperous Future Holdings maintains its low P/S off the back of its sliding revenue over the medium-term. Right now shareholders are accepting the low P/S as they concede future revenue probably won't provide any pleasant surprises either. If recent medium-term revenue trends continue, it's hard to see the share price moving strongly in either direction in the near future under these circumstances.
Before you take the next step, you should know about the 2 warning signs for Prosperous Future Holdings (1 is a bit concerning!) that we have uncovered.
If you're unsure about the strength of Prosperous Future 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.