Veeko International Holdings Limited (HKG:1173) shares have had a horrible month, losing 38% after a relatively good period beforehand. For any long-term shareholders, the last month ends a year to forget by locking in a 51% share price decline.
Although its price has dipped substantially, it's still not a stretch to say that Veeko International Holdings' price-to-sales (or "P/S") ratio of 0.1x right now seems quite "middle-of-the-road" compared to the Specialty Retail industry in Hong Kong, where the median P/S ratio is around 0.4x. 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.
View our latest analysis for Veeko International Holdings
What Does Veeko International Holdings' P/S Mean For Shareholders?
We'd have to say that with no tangible growth over the last year, Veeko International Holdings' revenue has been unimpressive. It might be that many expect the uninspiring revenue performance to only match most other companies at best over the coming period, which has kept the P/S from rising. 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.
Although there are no analyst estimates available for Veeko International Holdings, take a look at this free data-rich visualisation to see how the company stacks up on 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 Veeko International Holdings' is when the company's growth is tracking the industry closely.
If we review the last year of revenue, the company posted a result that saw barely any deviation from a year ago. The lack of growth did nothing to help the company's aggregate three-year performance, which is an unsavory 1.5% drop in revenue. 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 34% growth in the next 12 months, the company's downward momentum based on recent medium-term revenue results is a sobering picture.
With this information, we find it concerning that Veeko International Holdings is trading at a fairly similar P/S compared to the industry. 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.
The Key Takeaway
Veeko International Holdings' plummeting stock price has brought its P/S back to a similar region as the rest of the industry. We'd say the price-to-sales ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.
We find it unexpected that Veeko 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. When we see revenue heading backwards in the context of growing industry forecasts, it'd make sense to expect a possible share price decline on the horizon, sending the moderate P/S lower. 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.
Before you take the next step, you should know about the 2 warning signs for Veeko International Holdings that we have uncovered.
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.