To the annoyance of some shareholders, Champion Technology Holdings Limited (HKG:92) shares are down a considerable 31% in the last month, which continues a horrid run for the company. Instead of being rewarded, shareholders who have already held through the last twelve months are now sitting on a 35% share price drop.

Although its price has dipped substantially, there still wouldn't be many who think Champion Technology Holdings' price-to-sales (or "P/S") ratio of 1x is worth a mention when the median P/S in Hong Kong's Oil and Gas industry is similar at about 0.8x. Although, it's not wise to simply ignore the P/S without explanation as investors may be disregarding a distinct opportunity or a costly mistake.

How Champion Technology Holdings Has Been Performing

With revenue growth that's exceedingly strong of late, Champion Technology Holdings has been doing very well. It might be that many expect the strong revenue performance to wane, which has kept the share price, and thus the P/S ratio, from rising. If that doesn't eventuate, then existing shareholders have reason to be feeling optimistic about the future direction of the share price.

Is There Some Revenue Growth Forecasted For Champion Technology Holdings?

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

Taking a look back first, we see that the company's revenues underwent some rampant growth over the last 12 months. Despite this strong recent growth, it's still struggling to catch up as its three-year revenue frustratingly shrank by 50% overall. 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 1.7% shows it's an unpleasant look.

In light of this, it's somewhat alarming that Champion Technology Holdings' 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. There's a good chance existing shareholders are setting themselves up for future disappointment if the P/S falls to levels more in line with the recent negative growth rates.

What We Can Learn From Champion Technology Holdings' P/S?

With its share price dropping off a cliff, the P/S for Champion Technology Holdings looks to be in line with the rest of the Oil and Gas industry. 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.

We find it unexpected that Champion Technology 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.

Don't forget that there may be other risks. For instance, we've identified 3 warning signs for Champion Technology Holdings (1 makes us a bit uncomfortable) you should be aware of.

If you're unsure about the strength of Champion Technology Holdings' 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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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.