There wouldn’t be many who think RENHENG Enterprise Holdings Limited’s (HKG:3628) price-to-sales (or “P/S”) ratio of 1x is worth a mention when the median P/S for the Machinery industry in Hong Kong is similar at about 0.6x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/S.
View our latest analysis for RENHENG Enterprise Holdings
How RENHENG Enterprise Holdings Has Been Performing
RENHENG Enterprise Holdings has been doing a good job lately as it’s been growing revenue at a solid pace. It might be that many expect the respectable revenue performance to wane, which has kept the P/S from rising. If that doesn’t eventuate, then existing shareholders probably aren’t too pessimistic about the future direction of the share price.
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Do Revenue Forecasts Match The P/S Ratio?
The only time you’d be comfortable seeing a P/S like RENHENG Enterprise Holdings’ is when the company’s growth is tracking the industry closely.
Taking a look back first, we see that the company grew revenue by an impressive 29% last year. The strong recent performance means it was also able to grow revenue by 42% in total over the last three years. Accordingly, shareholders would have definitely welcomed those medium-term rates of revenue growth.
It’s interesting to note that the rest of the industry is similarly expected to grow by 13% over the next year, which is fairly even with the company’s recent medium-term annualised growth rates.
With this information, we can see why RENHENG Enterprise Holdings is trading at a fairly similar P/S to the industry. Apparently shareholders are comfortable to simply hold on assuming the company will continue keeping a low profile.
The Bottom Line On RENHENG Enterprise Holdings’ P/S
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.
As we’ve seen, RENHENG Enterprise Holdings’ three-year revenue trends seem to be contributing to its P/S, given they look similar to current industry expectations. With previous revenue trends that keep up with the current industry outlook, it’s hard to justify the company’s P/S ratio deviating much from it’s current point. If recent medium-term revenue trends continue, it’s hard to see the share price moving strongly in either direction in the near future under these circumstances.
Having said that, be aware RENHENG Enterprise Holdings is showing 2 warning signs in our investment analysis, and 1 of those is potentially serious.
If you’re unsure about the strength of RENHENG Enterprise 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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Find out whether RENHENG Enterprise Holdings is potentially over or undervalued by checking out our comprehensive analysis, which includes fair value estimates, risks and warnings, dividends, insider transactions and financial health.
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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.
