KML Technology Group Limited (HKG:8065) shares have had a really impressive month, gaining 36% after a shaky period beforehand. Notwithstanding the latest gain, the annual share price return of 3.8% isn't as impressive.
In spite of the firm bounce in price, it's still not a stretch to say that KML Technology Group's price-to-sales (or "P/S") ratio of 0.3x right now seems quite "middle-of-the-road" compared to the Construction industry in Hong Kong, seeing as it matches the P/S ratio of the wider industry. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/S.
How KML Technology Group Has Been Performing
KML Technology Group has been doing a good job lately as it's been growing revenue at a solid pace. Perhaps the market is expecting future revenue performance to only keep up with the broader industry, which has keeping the P/S in line with expectations. 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.
Want the full picture on earnings, revenue and cash flow for the company? Then our free report on KML Technology Group will help you shine a light on its historical performance.
Do Revenue Forecasts Match The P/S Ratio?
In order to justify its P/S ratio, KML Technology Group would need to produce growth that's similar to the industry.
Taking a look back first, we see that the company grew revenue by an impressive 27% last year. However, this wasn't enough as the latest three year period has seen the company endure a nasty 14% drop in revenue in aggregate. So unfortunately, we have to acknowledge that the company has not done a great job of growing revenues over that time.
Weighing that medium-term revenue trajectory against the broader industry's one-year forecast for expansion of 10% shows it's an unpleasant look.
In light of this, it's somewhat alarming that KML Technology Group's P/S sits in line with the majority of other companies. It seems most investors are ignoring the recent poor growth rate and are hoping for a turnaround in the company's business prospects. Only the boldest would assume these prices are sustainable as a continuation of recent revenue trends is likely to weigh on the share price eventually.
What Does KML Technology Group's P/S Mean For Investors?
KML Technology Group's stock has a lot of momentum behind it lately, which has brought its P/S level with 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.
The fact that KML Technology Group currently trades at a P/S on par with the rest of the industry is surprising to us since its recent revenues have been in decline over the medium-term, all while the industry is set to grow. Even though it matches the industry, we're uncomfortable with the current P/S ratio, as this dismal revenue performance is unlikely to support a more positive sentiment for long. Unless the recent medium-term conditions improve markedly, investors will have a hard time accepting the share price as fair value.
You always need to take note of risks, for example - KML Technology Group has 2 warning signs we think you should be aware of.
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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KML Technology Group Limited(HKG:8065)股票经过一段动荡期后,上月表现非常出色,上涨了36%。尽管最新涨幅达到了3.8%,但年度股价回报率并不令人印象深刻。