Apex Ace Holding Limited (HKG:6036) shares have had a really impressive month, gaining 27% after a shaky period beforehand. Looking back a bit further, it's encouraging to see the stock is up 59% in the last year.
In spite of the firm bounce in price, it's still not a stretch to say that Apex Ace Holding's price-to-sales (or "P/S") ratio of 0.2x right now seems quite "middle-of-the-road" compared to the Electronic industry in Hong Kong, where the median P/S ratio is around 0.3x. Although, it's not wise to simply ignore the P/S without explanation as investors may be disregarding a distinct opportunity or a costly mistake.
See our latest analysis for Apex Ace Holding
How Apex Ace Holding Has Been Performing
Recent times have been quite advantageous for Apex Ace Holding as its revenue has been rising very briskly. Perhaps the market is expecting future revenue performance to taper off, which has kept the P/S from rising. Those who are bullish on Apex Ace Holding will be hoping that this isn't the case, so that they can pick up the stock at a lower valuation.
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 Apex Ace Holding's earnings, revenue and cash flow.Do Revenue Forecasts Match The P/S Ratio?
The only time you'd be comfortable seeing a P/S like Apex Ace Holding's is when the company's growth is tracking the industry closely.
If we review the last year of revenue growth, the company posted a terrific increase of 61%. As a result, it also grew revenue by 30% in total over the last three years. Accordingly, shareholders would have probably been satisfied with the medium-term rates of revenue growth.
Comparing the recent medium-term revenue trends against the industry's one-year growth forecast of 24% shows it's noticeably less attractive.
In light of this, it's curious that Apex Ace Holding's P/S sits in line with the majority of other companies. It seems most investors are ignoring the fairly limited recent growth rates and are willing to pay up for exposure to the stock. Maintaining these prices will be difficult to achieve as a continuation of recent revenue trends is likely to weigh down the shares eventually.
What We Can Learn From Apex Ace Holding's P/S?
Apex Ace Holding appears to be back in favour with a solid price jump bringing its P/S back in line with other companies in the industry 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.
We've established that Apex Ace Holding's average P/S is a bit surprising since its recent three-year growth is lower than the wider industry forecast. When we see weak revenue with slower than industry growth, we suspect the share price is at risk of declining, bringing the P/S back in line with expectations. Unless the recent medium-term conditions improve, it's hard to accept the current share price as fair value.
Having said that, be aware Apex Ace Holding is showing 2 warning signs in our investment analysis, and 1 of those is concerning.
If these risks are making you reconsider your opinion on Apex Ace Holding, 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.