USPACE Technology Group Limited (HKG:1725) shareholders that were waiting for something to happen have been dealt a blow with a 30% share price drop in the last month. The recent drop completes a disastrous twelve months for shareholders, who are sitting on a 88% loss during that time.
In spite of the heavy fall in price, there still wouldn't be many who think USPACE Technology Group's price-to-sales (or "P/S") ratio of 0.7x 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.
How USPACE Technology Group Has Been Performing
For instance, USPACE Technology Group's receding revenue in recent times would have to be some food for thought. Perhaps investors believe the recent revenue performance is enough to keep in line with the industry, which is keeping the P/S from dropping off. If not, then existing shareholders may be a little nervous about the viability of the share price.
Want the full picture on earnings, revenue and cash flow for the company? Then our free report on USPACE Technology Group will help you shine a light on its historical performance.
How Is USPACE Technology Group's Revenue Growth Trending?
USPACE Technology Group's P/S ratio would be typical for a company that's only expected to deliver moderate growth, and importantly, perform in line with the industry.
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 6.6%. That put a dampener on the good run it was having over the longer-term as its three-year revenue growth is still a noteworthy 8.3% in total. Accordingly, while they would have preferred to keep the run going, shareholders would be roughly satisfied with the medium-term rates of revenue growth.
Comparing that to the industry, which is predicted to deliver 20% growth in the next 12 months, the company's momentum is weaker, based on recent medium-term annualised revenue results.
With this information, we find it interesting that USPACE Technology Group is trading at a fairly similar P/S compared to the industry. Apparently many investors in the company are less bearish than recent times would indicate and aren't willing to let go of their stock right now. Maintaining these prices will be difficult to achieve as a continuation of recent revenue trends is likely to weigh down the shares eventually.
The Final Word
Following USPACE Technology Group's share price tumble, its P/S is just clinging on to the industry median P/S. While the price-to-sales ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of revenue expectations.
We've established that USPACE Technology Group's average P/S is a bit surprising since its recent three-year growth is lower than the wider industry forecast. Right now we are uncomfortable with the P/S as this revenue performance isn't likely to support a more positive sentiment for long. If recent medium-term revenue trends continue, the probability of a share price decline will become quite substantial, placing shareholders at risk.
Having said that, be aware USPACE Technology Group is showing 3 warning signs in our investment analysis, and 1 of those shouldn't be ignored.
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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