VPower Group International Holdings Limited (HKG:1608) shares have had a really impressive month, gaining 30% after a shaky period beforehand. Not all shareholders will be feeling jubilant, since the share price is still down a very disappointing 41% in the last twelve months.
Although its price has surged higher, it's still not a stretch to say that VPower Group International Holdings' price-to-sales (or "P/S") ratio of 1x right now seems quite "middle-of-the-road" compared to the Electrical industry in Hong Kong, where the median P/S ratio is around 0.5x. 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.
Check out our latest analysis for VPower Group International Holdings
What Does VPower Group International Holdings' P/S Mean For Shareholders?
For instance, VPower Group International Holdings' receding revenue in recent times would have to be some food for thought. It might be that many expect the company to put the disappointing revenue performance behind them over the coming period, which has kept the P/S from falling. If you like the company, you'd at least be hoping this is the case so that you could potentially pick up some stock while it's not quite in favour.
Although there are no analyst estimates available for VPower Group International 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 VPower Group International Holdings?
The only time you'd be comfortable seeing a P/S like VPower Group International Holdings' is when the company's growth is tracking the industry closely.
In reviewing the last year of financials, we were disheartened to see the company's revenues fell to the tune of 49%. The last three years don't look nice either as the company has shrunk revenue by 61% in aggregate. Therefore, it's fair to say the revenue growth recently has been undesirable for the company.
Comparing that to the industry, which is predicted to deliver 17% 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 VPower Group International Holdings' P/S sits in line with the majority of other companies. Apparently many investors in the company are way less bearish than recent times would indicate and aren't willing to let go of their stock right now. There's a good chance existing shareholders are setting themselves up for future disappointment if the P/S falls to levels more in line with the recent negative growth rates.
What Does VPower Group International Holdings' P/S Mean For Investors?
VPower Group International Holdings' stock has a lot of momentum behind it lately, which has brought its P/S level with 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 find it unexpected that VPower Group International 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. If recent medium-term revenue trends continue, it will place shareholders' investments at risk and potential investors in danger of paying an unnecessary premium.
It's always necessary to consider the ever-present spectre of investment risk. We've identified 1 warning sign with VPower Group International Holdings, and understanding should be part of your investment process.
If these risks are making you reconsider your opinion on VPower Group International 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.