Unfortunately for some shareholders, the CT Vision S.L. (International) Holdings Limited (HKG:994) share price has dived 31% 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 73% share price decline.

Although its price has dipped substantially, it's still not a stretch to say that CT Vision S.L. (International) Holdings' price-to-sales (or "P/S") ratio of 0.4x 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.

What Does CT Vision S.L. (International) Holdings' P/S Mean For Shareholders?

CT Vision S.L. (International) Holdings certainly has been doing a great job lately as it's been growing its revenue at a really rapid pace. The P/S is probably moderate because investors think this strong revenue growth might not be enough to outperform the broader industry in the near future. If that doesn't eventuate, then existing shareholders have reason to be feeling optimistic about the future direction of the share price.

How Is CT Vision S.L. (International) Holdings' Revenue Growth Trending?

In order to justify its P/S ratio, CT Vision S.L. (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 terrific increase of 62%. Pleasingly, revenue has also lifted 38% in aggregate from three years ago, thanks to the last 12 months of growth. Accordingly, shareholders would have definitely welcomed those medium-term rates of revenue growth.

Weighing that recent medium-term revenue trajectory against the broader industry's one-year forecast for expansion of 10% shows it's about the same on an annualised basis.

With this information, we can see why CT Vision S.L. (International) Holdings is trading at a fairly similar P/S to the industry. Apparently shareholders are comfortable to simply hold on assuming the company will continue keeping a low profile.

What We Can Learn From CT Vision S.L. (International) Holdings' P/S?

CT Vision S.L. (International) Holdings' plummeting stock price has brought its P/S back to a similar region as the rest of the industry. It's argued the price-to-sales ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

As we've seen, CT Vision S.L. (International) Holdings' three-year revenue trends seem to be contributing to its P/S, given they look similar to current industry expectations. Right now shareholders are comfortable with the P/S as they are quite confident future revenue won't throw up any surprises. If recent medium-term revenue trends continue, it's hard to see the share price moving strongly in either direction in the near future under these circumstances.

You should always think about risks. Case in point, we've spotted 3 warning signs for CT Vision S.L. (International) Holdings you should be aware of, and 1 of them can't be ignored.

Of course, profitable companies with a history of great earnings growth are generally safer bets. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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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.