UTS Marketing Solutions Holdings Limited (HKG:6113) shareholders have had their patience rewarded with a 33% share price jump in the last month. Unfortunately, despite the strong performance over the last month, the full year gain of 3.8% isn't as attractive.
Since its price has surged higher, you could be forgiven for thinking UTS Marketing Solutions Holdings is a stock to steer clear of with a price-to-sales ratios (or "P/S") of 2.9x, considering almost half the companies in Hong Kong's Professional Services industry have P/S ratios below 0.5x. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly elevated P/S.
See our latest analysis for UTS Marketing Solutions Holdings
SEHK:6113 Price to Sales Ratio vs Industry September 11th 2023
How UTS Marketing Solutions Holdings Has Been Performing
For example, consider that UTS Marketing Solutions Holdings' financial performance has been pretty ordinary lately as revenue growth is non-existent. It might be that many are expecting an improvement to the uninspiring revenue performance over the coming period, which has kept the P/S from collapsing. 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 UTS Marketing Solutions Holdings will help you shine a light on its historical performance.
What Are Revenue Growth Metrics Telling Us About The High P/S?
In order to justify its P/S ratio, UTS Marketing Solutions Holdings would need to produce outstanding growth that's well in excess of the industry.
Taking a look back first, we see that there was hardly any revenue growth to speak of for the company over the past year. Fortunately, a few good years before that means that it was still able to grow revenue by 13% in total over the last three years. Therefore, it's fair to say that revenue growth has been inconsistent recently for the company.
Comparing the recent medium-term revenue trends against the industry's one-year growth forecast of 10% shows it's noticeably less attractive.
With this information, we find it concerning that UTS Marketing Solutions Holdings is trading at a P/S higher than the industry. Apparently many investors in the company are way more bullish than recent times would indicate and aren't willing to let go of their stock at any price. 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 recent growth rates.
The Final Word
Shares in UTS Marketing Solutions Holdings have seen a strong upwards swing lately, which has really helped boost its P/S figure. 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.
The fact that UTS Marketing Solutions Holdings currently trades on a higher P/S relative to the industry is an oddity, since its recent three-year growth is lower than the wider industry forecast. When we observe slower-than-industry revenue growth alongside a high P/S ratio, we assume there to be a significant risk of the share price decreasing, which would result in a lower P/S ratio. Unless there is a significant improvement in the company's medium-term performance, it will be difficult to prevent the P/S ratio from declining to a more reasonable level.
We don't want to rain on the parade too much, but we did also find 5 warning signs for UTS Marketing Solutions Holdings (1 shouldn't be ignored!) that you need to be mindful of.
If you're unsure about the strength of UTS Marketing Solutions 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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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.