Ausupreme International Holdings Limited (HKG:2031) shareholders would be excited to see that the share price has had a great month, posting a 29% gain and recovering from prior weakness. The last 30 days bring the annual gain to a very sharp 44%.
Although its price has surged higher, it's still not a stretch to say that Ausupreme International Holdings' price-to-sales (or "P/S") ratio of 0.9x right now seems quite "middle-of-the-road" compared to the Retail Distributors industry in Hong Kong, where the median P/S ratio is around 0.6x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/S.
SEHK:2031 Price to Sales Ratio vs Industry February 23rd 2024
What Does Ausupreme International Holdings' P/S Mean For Shareholders?
Recent times have been quite advantageous for Ausupreme International Holdings as its revenue has been rising very briskly. Perhaps the market is expecting future revenue performance to taper off, which has kept the P/S from rising. If that doesn't eventuate, then existing shareholders have reason to be feeling 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 Ausupreme International Holdings will help you shine a light on its historical performance.
Do Revenue Forecasts Match The P/S Ratio?
In order to justify its P/S ratio, Ausupreme International Holdings would need to produce growth that's similar to the industry.
Retrospectively, the last year delivered an exceptional 70% gain to the company's top line. Pleasingly, revenue has also lifted 69% in aggregate from three years ago, thanks to the last 12 months of growth. Therefore, it's fair to say the revenue growth recently has been superb for the company.
Weighing that recent medium-term revenue trajectory against the broader industry's one-year forecast for expansion of 18% shows it's about the same on an annualised basis.
In light of this, it's understandable that Ausupreme International Holdings' P/S sits in line with the majority of other companies. Apparently shareholders are comfortable to simply hold on assuming the company will continue keeping a low profile.
The Key Takeaway
Ausupreme International Holdings appears to be back in favour with a solid price jump bringing its P/S back in line with other companies in the industry Using the price-to-sales ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.
It appears to us that Ausupreme International Holdings maintains its moderate P/S off the back of its recent three-year growth being in line with the wider industry forecast. Currently, with a past revenue trend that aligns closely wit the industry outlook, shareholders are confident the company's future revenue outlook won't contain any major surprises. Given the current circumstances, it seems improbable that the share price will experience any significant movement in either direction in the near future if recent medium-term revenue trends persist.
We don't want to rain on the parade too much, but we did also find 3 warning signs for Ausupreme International Holdings (1 is a bit concerning!) that you need to be mindful of.
Of course, profitable companies with a history of great earnings growth are generally safer bets. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.
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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.