The Truly International Holdings Limited (HKG:732) share price has fared very poorly over the last month, falling by a substantial 26%.    For any long-term shareholders, the last month ends a year to forget by locking in a 58% share price decline.  

Although its price has dipped substantially, there still wouldn't be many who think Truly International Holdings' price-to-sales (or "P/S") ratio of 0.1x is worth a mention when the median P/S in Hong Kong's Electronic industry is similar at about 0.4x.  However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/S.    

See our latest analysis for Truly International Holdings

SEHK:732 Price to Sales Ratio vs Industry January 31st 2024

How Has Truly International Holdings Performed Recently?

As an illustration, revenue has deteriorated at Truly International Holdings over the last year, which is not ideal at all.   One possibility is that the P/S is moderate because investors think the company might still do enough to be in line with the broader industry in the near future.  If you like the company, you'd at least be hoping this is 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 Truly International Holdings will help you shine a light on its historical performance.  

Is There Some Revenue Growth Forecasted For Truly International Holdings?  

The only time you'd be comfortable seeing a P/S like Truly International Holdings' is when the company's growth is tracking the industry closely.  

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 29%.   The last three years don't look nice either as the company has shrunk revenue by 30% in aggregate.  Accordingly, shareholders would have felt downbeat about the medium-term rates of revenue growth.  

Comparing that to the industry, which is predicted to deliver 12% growth in the next 12 months, the company's downward momentum based on recent medium-term revenue results is a sobering picture.

With this information, we find it concerning that Truly International Holdings is trading at a fairly similar P/S compared to the industry.  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 Truly International Holdings' P/S Mean For Investors?

Following Truly International Holdings' share price tumble, its P/S is just clinging on to the industry median P/S.      Using the price-to-sales ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

We find it unexpected that Truly International Holdings trades at a P/S ratio that is comparable to the rest of the industry, despite experiencing declining revenues during the medium-term, while the industry as a whole is expected to grow.  When we see revenue heading backwards in the context of growing industry forecasts, it'd make sense to expect a possible share price decline on the horizon, sending the moderate P/S lower.  Unless the recent medium-term conditions improve markedly, investors will have a hard time accepting the share price as fair value.    

We don't want to rain on the parade too much, but we did also find 2 warning signs for Truly International Holdings (1 is potentially serious!) that you need to be mindful of.  

If companies with solid past earnings growth is up your alley, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

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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.