The Nimble Holdings Company Limited (HKG:186) share price has softened a substantial 26% over the previous 30 days, handing back much of the gains the stock has made lately. Instead of being rewarded, shareholders who have already held through the last twelve months are now sitting on a 10% share price drop.
In spite of the heavy fall in price, you could still be forgiven for feeling indifferent about Nimble Holdings' P/S ratio of 0.6x, since the median price-to-sales (or "P/S") ratio for the Retail Distributors industry in Hong Kong is about the same. 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 Nimble Holdings
How Has Nimble Holdings Performed Recently?
With revenue growth that's exceedingly strong of late, Nimble Holdings has been doing very well. The P/S is probably moderate because investors think this strong revenue growth might not be enough to outperform the broader industry in the near future. If you like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's not quite in favour.
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 Nimble Holdings' earnings, revenue and cash flow.How Is Nimble Holdings' Revenue Growth Trending?
There's an inherent assumption that a company should be matching the industry for P/S ratios like Nimble Holdings' to be considered reasonable.
If we review the last year of revenue growth, we see the company's revenues grew exponentially. The amazing performance means it was also able to deliver huge revenue growth over the last three years. So we can start by confirming that the company has done a tremendous job of growing revenue over that time.
This is in contrast to the rest of the industry, which is expected to grow by 29% over the next year, materially lower than the company's recent medium-term annualised growth rates.
In light of this, it's curious that Nimble Holdings' P/S sits in line with the majority of other companies. It may be that most investors are not convinced the company can maintain its recent growth rates.
The Final Word
Nimble Holdings' plummeting stock price has brought its P/S back to a similar region as the rest of the industry. Generally, our preference is to limit the use of the price-to-sales ratio to establishing what the market thinks about the overall health of a company.
We've established that Nimble Holdings currently trades on a lower than expected P/S since its recent three-year growth is higher than the wider industry forecast. It'd be fair to assume that potential risks the company faces could be the contributing factor to the lower than expected P/S. It appears some are indeed anticipating revenue instability, because the persistence of these recent medium-term conditions would normally provide a boost to the share price.
You always need to take note of risks, for example - Nimble Holdings has 2 warning signs we think you should be aware of.
If these risks are making you reconsider your opinion on Nimble Holdings, explore our interactive list of high quality stocks to get an idea of what else is out there.
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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.