Futong Technology Development Holdings Limited (HKG:465) shares have had a horrible month, losing 28% after a relatively good period beforehand.    Instead of being rewarded, shareholders who have already held through the last twelve months are now sitting on a 40% share price drop.  

Even after such a large drop in price, you could still be forgiven for feeling indifferent about Futong Technology Development Holdings' P/S ratio of 0.3x, since the median price-to-sales (or "P/S") ratio for the Tech industry in Hong Kong is also close to 0.5x.  Although, it's not wise to simply ignore the P/S without explanation as investors may be disregarding a distinct opportunity or a costly mistake.    

View our latest analysis for Futong Technology Development Holdings

SEHK:465 Price to Sales Ratio vs Industry January 8th 2024

What Does Futong Technology Development Holdings' P/S Mean For Shareholders?

As an illustration, revenue has deteriorated at Futong Technology Development Holdings over the last year, which is not ideal at all.   It might be that many expect the company to put the disappointing revenue performance behind them over the coming period, which has kept the P/S from falling.  If you like the company, you'd at least be hoping this is the case so that you could potentially pick up some stock while it's not quite in favour.    

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 Futong Technology Development Holdings' earnings, revenue and cash flow.  

Is There Some Revenue Growth Forecasted For Futong Technology Development Holdings?  

The only time you'd be comfortable seeing a P/S like Futong Technology Development Holdings' is when the company's growth is tracking the industry closely.  

Taking a look back first, the company's revenue growth last year wasn't something to get excited about as it posted a disappointing decline of 47%.   This means it has also seen a slide in revenue over the longer-term as revenue is down 76% in total over the last three years.  Accordingly, shareholders would have felt downbeat about the medium-term rates of revenue growth.  

Comparing that to the industry, which is predicted to deliver 13% growth in the next 12 months, the company's downward momentum based on recent medium-term revenue results is a sobering picture.

With this information, we find it concerning that Futong Technology Development Holdings is trading at a fairly similar P/S compared to the industry.  Apparently many investors in the company are way less bearish than recent times would indicate and aren't willing to let go of their stock right now.  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.  

What We Can Learn From Futong Technology Development Holdings' P/S?

Following Futong Technology Development Holdings' share price tumble, its P/S is just clinging on to the industry median P/S.      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.

The fact that Futong Technology Development Holdings currently trades at a P/S on par with the rest of the industry is surprising to us since its recent revenues have been in decline over the medium-term, all while the industry is set 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 recent medium-term conditions improve markedly, investors will have a hard time accepting the share price as fair value.    

We don't want to rain on the parade too much, but we did also find 3 warning signs for Futong Technology Development Holdings (2 can't be ignored!) that you need to be mindful of.  

If strong companies turning a profit tickle your fancy, then you'll want to check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).

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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.