Freetech Road Recycling Technology (Holdings) Limited (HKG:6888) shareholders would be excited to see that the share price has had a great month, posting a 27% gain and recovering from prior weakness. The bad news is that even after the stocks recovery in the last 30 days, shareholders are still underwater by about 9.0% over the last year.

In spite of the firm bounce in price, it would still be understandable if you think Freetech Road Recycling Technology (Holdings) is a stock with good investment prospects with a price-to-sales ratios (or "P/S") of 0.4x, considering almost half the companies in Hong Kong's Infrastructure industry have P/S ratios above 1.4x. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/S.

What Does Freetech Road Recycling Technology (Holdings)'s P/S Mean For Shareholders?

Freetech Road Recycling Technology (Holdings) has been doing a good job lately as it's been growing revenue at a solid pace. Perhaps the market is expecting this acceptable revenue performance to take a dive, which has kept the P/S suppressed. Those who are bullish on Freetech Road Recycling Technology (Holdings) will be hoping that this isn't the case, so that they can pick up the stock at a lower valuation.

How Is Freetech Road Recycling Technology (Holdings)'s Revenue Growth Trending?

In order to justify its P/S ratio, Freetech Road Recycling Technology (Holdings) would need to produce sluggish growth that's trailing the industry.

Retrospectively, the last year delivered a decent 14% gain to the company's revenues. However, due to its less than impressive performance prior to this period, revenue growth is practically non-existent over the last three years overall. 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 7.1% shows it's noticeably less attractive.

With this information, we can see why Freetech Road Recycling Technology (Holdings) is trading at a P/S lower than the industry. Apparently many shareholders weren't comfortable holding on to something they believe will continue to trail the wider industry.

The Bottom Line On Freetech Road Recycling Technology (Holdings)'s P/S

Freetech Road Recycling Technology (Holdings)'s stock price has surged recently, but its but its P/S still remains modest. 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.

As we suspected, our examination of Freetech Road Recycling Technology (Holdings) revealed its three-year revenue trends are contributing to its low P/S, given they look worse than current industry expectations. At this stage investors feel the potential for an improvement in revenue isn't great enough to justify a higher P/S ratio. If recent medium-term revenue trends continue, it's hard to see the share price experience a reversal of fortunes anytime soon.

You should always think about risks. Case in point, we've spotted 3 warning signs for Freetech Road Recycling Technology (Holdings) you should be aware of, and 1 of them is significant.

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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