AGTech Holdings Limited's (HKG:8279) price-to-sales (or "P/S") ratio of 5x may look like a poor investment opportunity when you consider close to half the companies in the IT industry in Hong Kong have P/S ratios below 1.2x. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's so lofty.

See our latest analysis for AGTech Holdings

What Does AGTech Holdings' Recent Performance Look Like?

Recent times have been quite advantageous for AGTech Holdings as its revenue has been rising very briskly. Perhaps the market is expecting future revenue performance to outperform the wider market, which has seemingly got people interested in the stock. If not, then existing shareholders might be a little nervous about the viability of the share price.

How Is AGTech Holdings' Revenue Growth Trending?

There's an inherent assumption that a company should far outperform the industry for P/S ratios like AGTech Holdings' to be considered reasonable.

Retrospectively, the last year delivered an exceptional 55% gain to the company's top line. The strong recent performance means it was also able to grow revenue by 238% in total over the last three years. Therefore, it's fair to say the revenue growth recently has been superb for the company.

Comparing that recent medium-term revenue trajectory with the industry's one-year growth forecast of 11% shows it's noticeably more attractive.

With this information, we can see why AGTech Holdings is trading at such a high P/S compared to the industry. Presumably shareholders aren't keen to offload something they believe will continue to outmanoeuvre the wider industry.

The Key Takeaway

Generally, our preference is to limit the use of the price-to-sales ratio to establishing what the market thinks about the overall health of a company.

As we suspected, our examination of AGTech Holdings revealed its three-year revenue trends are contributing to its high P/S, given they look better than current industry expectations. Right now shareholders are comfortable with the P/S as they are quite confident revenue aren't under threat. Unless the recent medium-term conditions change, they will continue to provide strong support to the share price.

Plus, you should also learn about this 1 warning sign we've spotted with AGTech Holdings.

If these risks are making you reconsider your opinion on AGTech 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.