RAS Technology Holdings Limited (ASX:RTH) Stocks Pounded By 29% But Not Lagging Industry On Growth Or Pricing

RAS Technology Holdings Limited (ASX:RTH) shareholders that were waiting for something to happen have been dealt a blow with a 29% share price drop in the last month. Longer-term, the stock has been solid despite a difficult 30 days, gaining 12% in the last year.

Although its price has dipped substantially, when almost half of the companies in Australia's Professional Services industry have price-to-sales ratios (or "P/S") below 1.4x, you may still consider RAS Technology Holdings as a stock probably not worth researching with its 2.8x P/S ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the elevated P/S.

See our latest analysis for RAS Technology Holdings

How RAS Technology Holdings Has Been Performing

With revenue growth that's superior to most other companies of late, RAS Technology Holdings has been doing relatively well. The P/S is probably high because investors think this strong revenue performance will continue. However, if this isn't the case, investors might get caught out paying too much for the stock.

Want the full picture on analyst estimates for the company? Then our free report on RAS Technology Holdings will help you uncover what's on the horizon.

Do Revenue Forecasts Match The High P/S Ratio?

In order to justify its P/S ratio, RAS Technology Holdings would need to produce impressive growth in excess of the industry.

Taking a look back first, we see that the company grew revenue by an impressive 38% last year. The latest three year period has also seen an excellent 206% overall rise in revenue, aided by its short-term performance. So we can start by confirming that the company has done a great job of growing revenue over that time.

Turning to the outlook, the next three years should generate growth of 20% per year as estimated by the one analyst watching the company. With the industry only predicted to deliver 4.9% per annum, the company is positioned for a stronger revenue result.

With this in mind, it's not hard to understand why RAS Technology Holdings' P/S is high relative to its industry peers. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.

What We Can Learn From RAS Technology Holdings' P/S?

Despite the recent share price weakness, RAS Technology Holdings' P/S remains higher than most other companies in the industry. 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.

We've established that RAS Technology Holdings maintains its high P/S on the strength of its forecasted revenue growth being higher than the the rest of the Professional Services industry, as expected. It appears that shareholders are confident in the company's future revenues, which is propping up the P/S. Unless the analysts have really missed the mark, these strong revenue forecasts should keep the share price buoyant.

Before you take the next step, you should know about the 2 warning signs for RAS Technology Holdings that we have uncovered.

If these risks are making you reconsider your opinion on RAS Technology 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.