Hatcher Group Limited (HKG:8365) shares have had a horrible month, losing 26% after a relatively good period beforehand.    For any long-term shareholders, the last month ends a year to forget by locking in a 97% share price decline.  

After such a large drop in price, Hatcher Group may be sending very bullish signals at the moment with its price-to-sales (or "P/S") ratio of 0.3x, since almost half of all companies in the Capital Markets industry in Hong Kong have P/S ratios greater than 2.4x and even P/S higher than 10x are not unusual.   However, the P/S might be quite low for a reason and it requires further investigation to determine if it's justified.  

SEHK:8365 Price to Sales Ratio vs Industry March 18th 2024

What Does Hatcher Group's P/S Mean For Shareholders?

Recent times have been quite advantageous for Hatcher Group as its revenue has been rising very briskly.   Perhaps the market is expecting future revenue performance to dwindle, which has kept the P/S suppressed.  If that doesn't eventuate, then existing shareholders have reason to be quite optimistic about the future direction of the share price.    

Want the full picture on earnings, revenue and cash flow for the company? Then our free report on Hatcher Group will help you shine a light on its historical performance.  

Is There Any Revenue Growth Forecasted For Hatcher Group?  

The only time you'd be truly comfortable seeing a P/S as depressed as Hatcher Group's is when the company's growth is on track to lag the industry decidedly.  

Retrospectively, the last year delivered an exceptional 56% gain to the company's top line.   The latest three year period has also seen an excellent 143% overall rise in revenue, aided by its short-term performance.  So we can start by confirming that the company has done a great job of growing revenue over that time.  

Comparing that to the industry, which is only predicted to deliver 31% growth in the next 12 months, the company's momentum is stronger based on recent medium-term annualised revenue results.

In light of this, it's peculiar that Hatcher Group's P/S sits below the majority of other companies.  Apparently some shareholders believe the recent performance has exceeded its limits and have been accepting significantly lower selling prices.  

The Final Word

Having almost fallen off a cliff, Hatcher Group's share price has pulled its P/S way down as well.      Typically, we'd caution against reading too much into price-to-sales ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

We're very surprised to see Hatcher Group currently trading on a much lower than expected P/S since its recent three-year growth is higher than the wider industry forecast.  When we see robust revenue growth that outpaces the industry, we presume that there are notable underlying risks to the company's future performance, which is exerting downward pressure on the P/S ratio.  At least price risks look to be very low if recent medium-term revenue trends continue, but investors seem to think future revenue could see a lot of volatility.    

There are also other vital risk factors to consider and we've discovered 4 warning signs for Hatcher Group (3 don't sit too well with us!) that you should be aware of before investing here.  

It's important to make sure you look for a great company, not just the first idea you come across. So if growing profitability aligns with your idea of a great company, take a peek at this free list of interesting companies with strong recent earnings growth (and a low P/E).

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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.