Worldgate Global Logistics Ltd (HKG:8292) shareholders would be excited to see that the share price has had a great month, posting a 28% gain and recovering from prior weakness. But the last month did very little to improve the 54% share price decline over the last year.

Even after such a large jump in price, it's still not a stretch to say that Worldgate Global Logistics' price-to-sales (or "P/S") ratio of 0.2x right now seems quite "middle-of-the-road" compared to the Logistics industry in Hong Kong, seeing as it matches the P/S ratio of the wider industry. While this might not raise any eyebrows, if the P/S ratio is not justified investors could be missing out on a potential opportunity or ignoring looming disappointment.

How Has Worldgate Global Logistics Performed Recently?

As an illustration, revenue has deteriorated at Worldgate Global Logistics 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.

Do Revenue Forecasts Match The P/S Ratio?

There's an inherent assumption that a company should be matching the industry for P/S ratios like Worldgate Global Logistics' to be considered reasonable.

In reviewing the last year of financials, we were disheartened to see the company's revenues fell to the tune of 14%. Even so, admirably revenue has lifted 69% in aggregate from three years ago, notwithstanding the last 12 months. Accordingly, while they would have preferred to keep the run going, shareholders would definitely welcome the medium-term rates of revenue growth.

Comparing that recent medium-term revenue trajectory with the industry's one-year growth forecast of 13% shows it's noticeably more attractive.

In light of this, it's curious that Worldgate Global Logistics' P/S sits in line with the majority of other companies. It may be that most investors are not convinced the company can maintain its recent growth rates.

The Bottom Line On Worldgate Global Logistics' P/S

Worldgate Global Logistics appears to be back in favour with a solid price jump bringing its P/S back in line with other companies in the industry 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 didn't quite envision Worldgate Global Logistics' P/S sitting in line with the wider industry, considering the revenue growth over the last three-year is higher than the current industry outlook. It'd be fair to assume that potential risks the company faces could be the contributing factor to the lower than expected P/S. At least the risk of a price drop looks to be subdued if recent medium-term revenue trends continue, but investors seem to think future revenue could see some volatility.

Before you take the next step, you should know about the 3 warning signs for Worldgate Global Logistics (2 make us uncomfortable!) that we have uncovered.

If companies with solid past earnings growth is up your alley, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

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