Global Link Communications Holdings Limited (HKG:8060) shares have had a really impressive month, gaining 44% after a shaky period beforehand. Not all shareholders will be feeling jubilant, since the share price is still down a very disappointing 45% in the last twelve months.
Even after such a large jump in price, considering around half the companies operating in Hong Kong's Software industry have price-to-sales ratios (or "P/S") above 1.3x, you may still consider Global Link Communications Holdings as an solid investment opportunity with its 0.2x P/S ratio. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's limited.
Check out our latest analysis for Global Link Communications Holdings
How Has Global Link Communications Holdings Performed Recently?
For instance, Global Link Communications Holdings' receding revenue in recent times would have to be some food for thought. Perhaps the market believes the recent revenue performance isn't good enough to keep up the industry, causing the P/S ratio to suffer. However, if this doesn't eventuate then existing shareholders may be feeling optimistic about the future direction of the share price.
Is There Any Revenue Growth Forecasted For Global Link Communications Holdings?
Global Link Communications Holdings' P/S ratio would be typical for a company that's only expected to deliver limited growth, and importantly, perform worse than the industry.
In reviewing the last year of financials, we were disheartened to see the company's revenues fell to the tune of 19%. Even so, admirably revenue has lifted 79% in aggregate from three years ago, notwithstanding the last 12 months. Accordingly, while they would have preferred to keep the run going, shareholders would definitely welcome the medium-term rates of revenue growth.
This is in contrast to the rest of the industry, which is expected to grow by 24% over the next year, materially higher than the company's recent medium-term annualised growth rates.
With this information, we can see why Global Link Communications Holdings is trading at a P/S lower than the industry. Apparently many shareholders weren't comfortable holding on to something they believe will continue to trail the wider industry.
The Key Takeaway
Despite Global Link Communications Holdings' share price climbing recently, its P/S still lags most other companies. 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 suspected, our examination of Global Link Communications Holdings revealed its three-year revenue trends are contributing to its low P/S, given they look worse than current industry expectations. Right now shareholders are accepting the low P/S as they concede future revenue probably won't provide any pleasant surprises. If recent medium-term revenue trends continue, it's hard to see the share price experience a reversal of fortunes anytime soon.
Before you settle on your opinion, we've discovered 2 warning signs for Global Link Communications Holdings that you should be aware of.
If strong companies turning a profit tickle your fancy, then you'll want to check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).
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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.
