Unfortunately for some shareholders, the New Concepts Holdings Limited (HKG:2221) share price has dived 25% in the last thirty days, prolonging recent pain. For any long-term shareholders, the last month ends a year to forget by locking in a 75% share price decline.
In spite of the heavy fall in price, it's still not a stretch to say that New Concepts Holdings' price-to-sales (or "P/S") ratio of 0.2x right now seems quite "middle-of-the-road" compared to the Construction industry in Hong Kong, where the median P/S ratio is around 0.3x. 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.
Check out our latest analysis for New Concepts Holdings
What Does New Concepts Holdings' Recent Performance Look Like?
New Concepts Holdings has been doing a good job lately as it's been growing revenue at a solid pace. It might be that many expect the respectable revenue performance to wane, which has kept the P/S from rising. Those who are bullish on New Concepts Holdings 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 New Concepts Holdings' earnings, revenue and cash flow.Do Revenue Forecasts Match The P/S Ratio?
In order to justify its P/S ratio, New Concepts Holdings 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. Revenue has also lifted 22% in aggregate from three years ago, mostly thanks to the last 12 months of growth. So we can start by confirming that the company has actually done a good job of growing revenue over that time.
Comparing that to the industry, which is predicted to deliver 8.3% growth in the next 12 months, the company's momentum is pretty similar based on recent medium-term annualised revenue results.
In light of this, it's understandable that New Concepts Holdings' P/S sits in line with the majority of other companies. Apparently shareholders are comfortable to simply hold on assuming the company will continue keeping a low profile.
What Does New Concepts Holdings' P/S Mean For Investors?
New Concepts Holdings' plummeting stock price has brought its P/S back to a similar region as 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.
It appears to us that New Concepts Holdings maintains its moderate P/S off the back of its recent three-year growth being in line with the wider industry forecast. Currently, with a past revenue trend that aligns closely wit the industry outlook, shareholders are confident the company's future revenue outlook won't contain any major surprises. Given the current circumstances, it seems improbable that the share price will experience any significant movement in either direction in the near future if recent medium-term revenue trends persist.
And what about other risks? Every company has them, and we've spotted 2 warning signs for New Concepts Holdings (of which 1 doesn't sit too well with us!) you should know about.
If these risks are making you reconsider your opinion on New Concepts 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.