Alpha Professional Holdings Limited (HKG:948) shareholders would be excited to see that the share price has had a great month, posting a 40% gain and recovering from prior weakness. Not all shareholders will be feeling jubilant, since the share price is still down a very disappointing 36% in the last twelve months.
Although its price has surged higher, it's still not a stretch to say that Alpha Professional Holdings' price-to-sales (or "P/S") ratio of 1.1x right now seems quite "middle-of-the-road" compared to the Consumer Retailing industry in Hong Kong, where the median P/S ratio is around 0.6x. 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.
Check out our latest analysis for Alpha Professional Holdings
What Does Alpha Professional Holdings' Recent Performance Look Like?
As an illustration, revenue has deteriorated at Alpha Professional Holdings over the last year, which is not ideal at all. One possibility is that the P/S is moderate because investors think the company might still do enough to be in line with the broader industry in the near future. If not, then existing shareholders may be a little nervous about the viability of the share price.
Although there are no analyst estimates available for Alpha Professional Holdings, take a look at this free data-rich visualisation to see how the company stacks up on earnings, revenue and cash flow.Is There Some Revenue Growth Forecasted For Alpha Professional Holdings?
Alpha Professional 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.
Retrospectively, the last year delivered a frustrating 73% decrease to the company's top line. As a result, revenue from three years ago have also fallen 64% overall. So unfortunately, we have to acknowledge that the company has not done a great job of growing revenue over that time.
Comparing that to the industry, which is predicted to deliver 11% 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 somewhat alarming that Alpha Professional Holdings' P/S sits in line with the majority of other companies. It seems most investors are ignoring the recent poor growth rate and are hoping for a turnaround in the company's business prospects. Only the boldest would assume these prices are sustainable as a continuation of recent revenue trends is likely to weigh on the share price eventually.
The Bottom Line On Alpha Professional Holdings' P/S
Alpha Professional Holdings' stock has a lot of momentum behind it lately, which has brought its P/S level with the rest of the industry. Typically, we'd caution against reading too much into price-to-sales ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.
We find it unexpected that Alpha Professional Holdings trades at a P/S ratio that is comparable to the rest of the industry, despite experiencing declining revenues during the medium-term, while the industry as a whole is expected to grow. Even though it matches the industry, we're uncomfortable with the current P/S ratio, as this dismal revenue performance is unlikely to support a more positive sentiment for long. Unless the the circumstances surrounding the recent medium-term improve, it wouldn't be wrong to expect a a difficult period ahead for the company's shareholders.
You should always think about risks. Case in point, we've spotted 3 warning signs for Alpha Professional Holdings you should be aware of, and 2 of them don't sit too well with us.
If you're unsure about the strength of Alpha Professional 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.