Q Technology (Group) Company Limited (HKG:1478) shares have continued their recent momentum with a 28% gain in the last month alone. The last month tops off a massive increase of 176% in the last year.
Although its price has surged higher, you could still be forgiven for feeling indifferent about Q Technology (Group)'s P/S ratio of 0.6x, since the median price-to-sales (or "P/S") ratio for the Electronic 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.
Check out our latest analysis for Q Technology (Group)
How Q Technology (Group) Has Been Performing
Recent times have been advantageous for Q Technology (Group) as its revenues have been rising faster than most other companies. It might be that many expect the strong revenue performance to wane, which has kept the P/S ratio from rising. If not, then existing shareholders have reason to be feeling optimistic about the future direction of the share price.
If you'd like to see what analysts are forecasting going forward, you should check out our free report on Q Technology (Group).What Are Revenue Growth Metrics Telling Us About The P/S?
In order to justify its P/S ratio, Q Technology (Group) would need to produce growth that's similar to the industry.
Retrospectively, the last year delivered an exceptional 21% gain to the company's top line. Still, revenue has fallen 18% in total from three years ago, which is quite disappointing. So unfortunately, we have to acknowledge that the company has not done a great job of growing revenues over that time.
Looking ahead now, revenue is anticipated to climb by 8.4% per annum during the coming three years according to the analysts following the company. That's shaping up to be materially lower than the 23% per year growth forecast for the broader industry.
With this in mind, we find it intriguing that Q Technology (Group)'s P/S is closely matching its industry peers. It seems most investors are ignoring the fairly limited growth expectations and are willing to pay up for exposure to the stock. These shareholders may be setting themselves up for future disappointment if the P/S falls to levels more in line with the growth outlook.
What Does Q Technology (Group)'s P/S Mean For Investors?
Q Technology (Group)'s 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.
Given that Q Technology (Group)'s revenue growth projections are relatively subdued in comparison to the wider industry, it comes as a surprise to see it trading at its current P/S ratio. At present, we aren't confident in the P/S as the predicted future revenues aren't likely to support a more positive sentiment for long. Circumstances like this present a risk to current and prospective investors who may see share prices fall if the low revenue growth impacts the sentiment.
Many other vital risk factors can be found on the company's balance sheet. Our free balance sheet analysis for Q Technology (Group) with six simple checks will allow you to discover any risks that could be an issue.
It's important to make sure you look for a great company, not just the first idea you come across. So if growing profitability aligns with your idea of a great company, take a peek at this free list of interesting companies with strong recent earnings growth (and a low P/E).
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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.