Down 26%, but Hope Life International Holdings Limited (HKG:1683) may be riskier than it looks

Hope Life International Holdings Limited (HKG:1683) shareholders who were waiting for something to happen have been hit with a 26% drop in the share price in the last month. The latest drop caps a disastrous twelve months for shareholders who have suffered a 72% loss in that time.

Since its price has fallen significantly, one might understand Hope Life International Holdings to be a good investment prospect with a price-to-sales (or “P/S”) ratio of 0.3x, considering that almost half of Hong Kong’s consumer services companies have P/S ratios above 1.1x. However, the P/S may be low for a reason and requires further investigation to determine whether it is justified.

See our latest analysis for Hope Life International Holdings

What does Hope Life International Holdings’ P/S ratio mean to shareholders?

With exceptionally strong revenue growth recently, Hope Life International Holdings is doing very well. Perhaps the market is expecting a decline in future revenue, which is why the P/S is lower. Those who are bullish on Hope Life International Holdings will be hoping that this does not happen so that they can buy the stock at a lower valuation.

While there are no analyst estimates for Hope Life International Holdings, take a look at this free a data-rich visualization showing how your company is performing in terms of profits, revenues and cash flow.

What is the revenue growth trend for Hope Life International Holdings?

The only time you could feel truly comfortable seeing a P/S ratio as low as Hope Life International Holdings’ is if the company’s growth is on track to be below the industry average.

If we look at the last year of revenue growth, the company has seen an incredible 54% growth. The last three-year period also saw an excellent 159% revenue growth, helped by short-term performance. As such, shareholders would certainly welcome these medium-term revenue growth rates.

Compared to the industry, which is forecast to grow just 18% over the next 12 months, the company’s momentum is stronger based on its recent mid-year revenue performance.

In light of this, it is strange that Hope Life International Holdings’ P/S is lower than most other companies. It seems that most investors are not convinced that the company can maintain its recent growth rates.

Last word

The southward movement in Hope Life International Holdings shares means that the P/S is currently at a fairly low level. We would say that the power of the P/S ratio is not primarily in its capacity as a valuation instrument, but rather in assessing current investor sentiment and future expectations.

Our research on Hope Life International Holdings has shown that the three-year revenue trends are not increasing the P/S ratio as much as we had anticipated, given that they look better than current industry expectations. Potential investors who are skeptical about the sustainability of the revenue performance may be preventing the P/S ratio from reaching its previous strong performance. While recent revenue trends over the past medium term suggest that the risk of a price decline is low, investors seem to recognize the likelihood of future revenue fluctuations.

Before you take the next step, you should know about 3 Warning Signs for Hope Life International Holdings that we discovered.

if you are uncertain about the strength of Hope Life International Holdings’ businesswhy not check out our interactive list of stocks with solid business fundamentals for other companies you might have missed.

Have an opinion on this article? Concerned about the content? contact us with us directly. You can also email us at editorial-team (at) simplywallst.com.

This Simply Wall St article is for general information purposes only. Our commentary is based solely on historical data and analyst forecasts, and is based on an objective methodology. Our articles are not intended to be financial advice. It is not a recommendation to buy or sell stocks and does not take into account your objectives or your financial situation. Our goal is to provide you with long-term, focused analysis based on fundamental data. Please note that our analysis may not reflect the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

Have feedback on this article? Concerned about the content? Contact us directly. Alternatively, send an email to [email protected]