Revenues Not Telling The Story For Wah Wo Holdings Group Limited (HKG:9938)

Simply Wall St · 10/14 23:54

It's not a stretch to say that Wah Wo Holdings Group Limited's (HKG:9938) price-to-sales (or "P/S") ratio of 0.3x seems quite "middle-of-the-road" for Construction companies in Hong Kong, seeing as it matches the P/S ratio of the wider industry. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/S.

Check out our latest analysis for Wah Wo Holdings Group

ps-multiple-vs-industry
SEHK:9938 Price to Sales Ratio vs Industry October 14th 2024

What Does Wah Wo Holdings Group's P/S Mean For Shareholders?

Wah Wo Holdings Group has been doing a good job lately as it's been growing revenue at a solid pace. One possibility is that the P/S is moderate because investors think this respectable revenue growth might not be enough to outperform the broader industry in the near future. If that doesn't eventuate, then existing shareholders probably aren't too pessimistic 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 Wah Wo Holdings Group will help you shine a light on its historical performance.

How Is Wah Wo Holdings Group's Revenue Growth Trending?

There's an inherent assumption that a company should be matching the industry for P/S ratios like Wah Wo Holdings Group's to be considered reasonable.

Retrospectively, the last year delivered a decent 14% gain to the company's revenues. Still, lamentably revenue has fallen 32% in aggregate from three years ago, which is disappointing. So unfortunately, we have to acknowledge that the company has not done a great job of growing revenue over that time.

Weighing that medium-term revenue trajectory against the broader industry's one-year forecast for expansion of 10% shows it's an unpleasant look.

In light of this, it's somewhat alarming that Wah Wo Holdings Group's P/S sits in line with the majority of other companies. 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. Only the boldest would assume these prices are sustainable as a continuation of recent revenue trends is likely to weigh on the share price eventually.

The Bottom Line On Wah Wo Holdings Group's P/S

It's argued the price-to-sales ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

Our look at Wah Wo Holdings Group revealed its shrinking revenues over the medium-term haven't impacted the P/S as much as we anticipated, given the industry is set to grow. Even though it matches the industry, we're uncomfortable with the current P/S ratio, as this dismal revenue performance is unlikely to support a more positive sentiment for long. If recent medium-term revenue trends continue, it will place shareholders' investments at risk and potential investors in danger of paying an unnecessary premium.

There are also other vital risk factors to consider and we've discovered 2 warning signs for Wah Wo Holdings Group (1 is concerning!) that you should be aware of before investing here.

It's important to make sure you look for a great company, not just the first idea you come across. So if growing profitability aligns with your idea of a great company, take a peek at this free list of interesting companies with strong recent earnings growth (and a low P/E).