To the annoyance of some shareholders, Leadway Technology Investment Group Limited (HKG:2086) shares are down a considerable 27% in the last month, which continues a horrid run for the company. The drop over the last 30 days has capped off a tough year for shareholders, with the share price down 38% in that time.
Although its price has dipped substantially, given close to half the companies operating in Hong Kong's Tech industry have price-to-sales ratios (or "P/S") below 0.6x, you may still consider Leadway Technology Investment Group as a stock to potentially avoid with its 1.6x P/S ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the elevated P/S.
How Leadway Technology Investment Group Has Been Performing
For instance, Leadway Technology Investment Group's receding revenue in recent times would have to be some food for thought. One possibility is that the P/S is high because investors think the company will still do enough to outperform the broader industry in the near future. However, if this isn't the case, investors might get caught out paying too much for the stock.
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 Leadway Technology Investment Group's earnings, revenue and cash flow.
How Is Leadway Technology Investment Group's Revenue Growth Trending?
In order to justify its P/S ratio, Leadway Technology Investment Group would need to produce impressive growth in excess of the industry.
Taking a look back first, the company's revenue growth last year wasn't something to get excited about as it posted a disappointing decline of 14%. This means it has also seen a slide in revenue over the longer-term as revenue is down 8.4% in total over the last three years. Accordingly, shareholders would have felt downbeat about the medium-term rates of revenue growth.
Comparing that to the industry, which is predicted to deliver 19% 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 alarming that Leadway Technology Investment Group's P/S sits above the majority of other companies. Apparently many investors in the company are way more bullish than recent times would indicate and aren't willing to let go of their stock at any price. Only the boldest would assume these prices are sustainable as a continuation of recent revenue trends is likely to weigh heavily on the share price eventually.
The Final Word
There's still some elevation in Leadway Technology Investment Group's P/S, even if the same can't be said for its share price recently. 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've established that Leadway Technology Investment Group currently trades on a much higher than expected P/S since its recent revenues have been in decline over the medium-term. When we see revenue heading backwards and underperforming the industry forecasts, we feel the possibility of the share price declining is very real, bringing the P/S back into the realm of reasonability. 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.
It is also worth noting that we have found 3 warning signs for Leadway Technology Investment Group (2 are concerning!) that you need to take into consideration.
If you're unsure about the strength of Leadway Technology Investment Group's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.
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令一些股东感到恼火的是,Leadway Technology Investment Group Limited (HKG:2086)的股价在过去一个月内下跌了27%,这继续了公司的糟糕表现。过去30天的跌幅为股东们带来了一个艰难的一年,股价在此期间下跌了38%。