Despite an already strong run, Wise Ally International Holdings Limited (HKG:9918) shares have been powering on, with a gain of 93% in the last thirty days. The annual gain comes to 254% following the latest surge, making investors sit up and take notice.
In spite of the firm bounce in price, you could still be forgiven for feeling indifferent about Wise Ally International Holdings' P/S ratio of 0.1x, since the median price-to-sales (or "P/S") ratio for the Electronic industry in Hong Kong is also close to 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.
Check out our latest analysis for Wise Ally International Holdings
How Has Wise Ally International Holdings Performed Recently?
Wise Ally International Holdings has been doing a decent job lately as it's been growing revenue at a reasonable pace. Perhaps the expectation moving forward is that the revenue growth will track in line with the wider industry for the near term, which has kept the P/S subdued. If not, then at least existing shareholders probably aren't too pessimistic about the future direction of the share price.
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 Wise Ally International Holdings' earnings, revenue and cash flow.Is There Some Revenue Growth Forecasted For Wise Ally International Holdings?
In order to justify its P/S ratio, Wise Ally International Holdings would need to produce growth that's similar to the industry.
If we review the last year of revenue growth, the company posted a worthy increase of 2.7%. The solid recent performance means it was also able to grow revenue by 20% in total over the last three years. So we can start by confirming that the company has actually done a good job of growing revenue over that time.
This is in contrast to the rest of the industry, which is expected to grow by 18% over the next year, materially higher than the company's recent medium-term annualised growth rates.
In light of this, it's curious that Wise Ally International Holdings' 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. They may be setting themselves up for future disappointment if the P/S falls to levels more in line with recent growth rates.
The Final Word
Its shares have lifted substantially and now Wise Ally International Holdings' P/S is back within range of the industry median. 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.
Our examination of Wise Ally International Holdings revealed its poor three-year revenue trends aren't resulting in a lower P/S as per our expectations, given they look worse than current industry outlook. Right now we are uncomfortable with the P/S as this revenue performance isn't likely to support a more positive sentiment for long. Unless the recent medium-term conditions improve, it's hard to accept the current share price as fair value.
It's always necessary to consider the ever-present spectre of investment risk. We've identified 3 warning signs with Wise Ally International Holdings (at least 1 which can't be ignored), and understanding these should be part of your investment process.
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.