Virtual Mind Holding Company Limited (HKG:1520) shareholders would be excited to see that the share price has had a great month, posting a 49% gain and recovering from prior weakness. Not all shareholders will be feeling jubilant, since the share price is still down a very disappointing 29% in the last twelve months.
Since its price has surged higher, when almost half of the companies in Hong Kong's Luxury industry have price-to-sales ratios (or "P/S") below 0.7x, you may consider Virtual Mind Holding as a stock not worth researching with its 3.2x P/S ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly elevated P/S.
Check out our latest analysis for Virtual Mind Holding
What Does Virtual Mind Holding's P/S Mean For Shareholders?
As an illustration, revenue has deteriorated at Virtual Mind Holding over the last year, which is not ideal at all. One possibility is that the P/S is high because investors think the company will still do enough to outperform the broader industry in the near future. However, if this isn't the case, investors might get caught out paying too much for the stock.
We don't have analyst forecasts, but you can see how recent trends are setting up the company for the future by checking out our free report on Virtual Mind Holding's earnings, revenue and cash flow.
Do Revenue Forecasts Match The High P/S Ratio?
In order to justify its P/S ratio, Virtual Mind Holding would need to produce outstanding growth that's well in excess of the industry.
Retrospectively, the last year delivered a frustrating 25% decrease to the company's top line. The last three years don't look nice either as the company has shrunk revenue by 31% in aggregate. Therefore, it's fair to say the revenue growth recently has been undesirable for the company.
Weighing that medium-term revenue trajectory against the broader industry's one-year forecast for expansion of 12% shows it's an unpleasant look.
With this information, we find it concerning that Virtual Mind Holding is trading at a P/S higher than the industry. It seems most investors are ignoring the recent poor growth rate and are hoping for a turnaround in the company's business prospects. Only the boldest would assume these prices are sustainable as a continuation of recent revenue trends is likely to weigh heavily on the share price eventually.
The Key Takeaway
Virtual Mind Holding's P/S has grown nicely over the last month thanks to a handy boost in the share price. We'd say the price-to-sales ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.
We've established that Virtual Mind Holding currently trades on a much higher than expected P/S since its recent revenues have been in decline over the medium-term. When we see revenue heading backwards and underperforming the industry forecasts, we feel the possibility of the share price declining is very real, bringing the P/S back into the realm of reasonability. Unless the recent medium-term conditions improve markedly, investors will have a hard time accepting the share price as fair value.
Before you settle on your opinion, we've discovered 3 warning signs for Virtual Mind Holding that you should be aware of.
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).
Have feedback on this article? Concerned about the content?Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com. 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.
Virtual Mind Holding Company Company Company Limited(HKG: 1520)股東會很高興看到股價表現良好,漲幅爲49%,並從先前的疲軟中恢復過來。並非所有股東都會感到歡欣鼓舞,因爲股價在過去十二個月中仍然下跌了令人失望的29%。
由於Virtual Mind Holding的價格飆升,當香港奢侈品行業中將近一半的公司的市售比(或 “P/S”)低於0.7倍時,您可以將Virtual Mind Holding視爲不值得研究的股票,其市盈率爲3.2倍。儘管如此,我們需要更深入地挖掘,以確定市盈率大幅上升是否有合理的基礎。
查看我們對 Virtual Mind Holding 的最新分析
Virtual Mind Holding的市盈率對股東意味着什麼?
舉例來說,Virtual Mind Holding的收入在過去一年中有所下降,這根本不理想。一種可能性是市盈率居高不下,因爲投資者認爲該公司在不久的將來仍然足以跑贏整個行業。但是,如果不是這樣,投資者可能會陷入爲股票支付過多費用的困境。
我們沒有分析師的預測,但您可以查看我們關於Virtual Mind Holding收益、收入和現金流的免費報告,了解最近的趨勢如何爲公司未來做好準備。
收入預測與高市盈率相匹配嗎?
爲了證明其市盈率是合理的,Virtual Mind Holding需要實現遠遠超過該行業的出色增長。