The Market Doesn't Like What It Sees From Oldfields Holdings Limited's (ASX:OLH) Revenues Yet As Shares Tumble 31%

Oldfields Holdings Limited (ASX:OLH) shares have had a horrible month, losing 31% after a relatively good period beforehand. The recent drop completes a disastrous twelve months for shareholders, who are sitting on a 78% loss during that time.

Following the heavy fall in price, Oldfields Holdings' price-to-sales (or "P/S") ratio of 0.1x might make it look like a buy right now compared to the Machinery industry in Australia, where around half of the companies have P/S ratios above 1.2x and even P/S above 24x are quite common. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's limited.

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Check out our latest analysis for Oldfields Holdings

How Oldfields Holdings Has Been Performing

For instance, Oldfields Holdings' receding revenue in recent times would have to be some food for thought. One possibility is that the P/S is low because investors think the company won't do enough to avoid underperforming the broader industry in the near future. If you like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's out of favour.

Want the full picture on earnings, revenue and cash flow for the company? Then our free report on Oldfields Holdings will help you shine a light on its historical performance.

What Are Revenue Growth Metrics Telling Us About The Low P/S?

In order to justify its P/S ratio, Oldfields Holdings would need to produce sluggish growth that's trailing the industry.

In reviewing the last year of financials, we were disheartened to see the company's revenues fell to the tune of 17%. This has soured the latest three-year period, which nevertheless managed to deliver a decent 13% overall rise in revenue. So we can start by confirming that the company has generally done a good job of growing revenue over that time, even though it had some hiccups along the way.

This is in contrast to the rest of the industry, which is expected to grow by 187% over the next year, materially higher than the company's recent medium-term annualised growth rates.

In light of this, it's understandable that Oldfields Holdings' P/S sits below the majority of other companies. It seems most investors are expecting to see the recent limited growth rates continue into the future and are only willing to pay a reduced amount for the stock.

The Final Word

Oldfields Holdings' recently weak share price has pulled its P/S back below other Machinery companies. 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 Oldfields Holdings revealed its three-year revenue trends are contributing to its low P/S, given they look worse than current industry expectations. Right now shareholders are accepting the low P/S as they concede future revenue probably won't provide any pleasant surprises. Unless the recent medium-term conditions improve, they will continue to form a barrier for the share price around these levels.

You should always think about risks. Case in point, we've spotted 6 warning signs for Oldfields Holdings you should be aware of, and 5 of them don't sit too well with us.

If these risks are making you reconsider your opinion on Oldfields Holdings, explore our interactive list of high quality stocks to get an idea of what else is out there.

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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.