Reliance Global Holdings Limited (HKG:723) shares have continued their recent momentum with a 42% gain in the last month alone. The last month tops off a massive increase of 240% in the last year.

Even after such a large jump in price, there still wouldn't be many who think Reliance Global Holdings' price-to-sales (or "P/S") ratio of 1.2x is worth a mention when the median P/S in Hong Kong's Forestry industry is similar at about 0.9x. While this might not raise any eyebrows, if the P/S ratio is not justified investors could be missing out on a potential opportunity or ignoring looming disappointment.

What Does Reliance Global Holdings' Recent Performance Look Like?

For instance, Reliance Global Holdings' 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.

How Is Reliance Global Holdings' Revenue Growth Trending?

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

Retrospectively, the last year delivered a frustrating 2.3% decrease to the company's top line. As a result, revenue from three years ago have also fallen 59% overall. Accordingly, shareholders would have felt downbeat about the medium-term rates of revenue growth.

In contrast to the company, the rest of the industry is expected to grow by 12% over the next year, which really puts the company's recent medium-term revenue decline into perspective.

In light of this, it's somewhat alarming that Reliance Global 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.

The Bottom Line On Reliance Global Holdings' P/S

Reliance Global Holdings' stock has a lot of momentum behind it lately, which has brought its P/S level with the rest of the 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 Reliance Global 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 the circumstances surrounding the recent medium-term improve, it wouldn't be wrong to expect a a difficult period ahead for the company's shareholders.

Before you settle on your opinion, we've discovered 4 warning signs for Reliance Global Holdings (2 are a bit unpleasant!) that you should be aware of.

If you're unsure about the strength of Reliance Global 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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