Slammed 26% hipages Group Holdings Limited (ASX:HPG) Screens Well Here But There Might Be A Catch

hipages Group Holdings Limited (ASX:HPG) shares have had a horrible month, losing 26% after a relatively good period beforehand. The recent drop has obliterated the annual return, with the share price now down 8.8% over that longer period.

Since its price has dipped substantially, hipages Group Holdings' price-to-sales (or "P/S") ratio of 1.7x might make it look like a buy right now compared to the Interactive Media and Services industry in Australia, where around half of the companies have P/S ratios above 3.1x and even P/S above 8x 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.

Check out our latest analysis for hipages Group Holdings

How Has hipages Group Holdings Performed Recently?

hipages Group Holdings could be doing better as it's been growing revenue less than most other companies lately. The P/S ratio is probably low because investors think this lacklustre revenue performance isn't going to get any better. If you still like the company, you'd be hoping revenue doesn't get any worse and that you could pick up some stock while it's out of favour.

If you'd like to see what analysts are forecasting going forward, you should check out our free report on hipages Group Holdings.

Do Revenue Forecasts Match The Low P/S Ratio?

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

If we review the last year of revenue growth, the company posted a worthy increase of 8.9%. The latest three year period has also seen an excellent 34% overall rise in revenue, aided somewhat by its short-term performance. Therefore, it's fair to say the revenue growth recently has been superb for the company.

Turning to the outlook, the next year should generate growth of 12% as estimated by the three analysts watching the company. Meanwhile, the rest of the industry is forecast to only expand by 2.4%, which is noticeably less attractive.

In light of this, it's peculiar that hipages Group Holdings' P/S sits below the majority of other companies. Apparently some shareholders are doubtful of the forecasts and have been accepting significantly lower selling prices.

The Bottom Line On hipages Group Holdings' P/S

hipages Group Holdings' recently weak share price has pulled its P/S back below other Interactive Media and Services 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.

A look at hipages Group Holdings' revenues reveals that, despite glowing future growth forecasts, its P/S is much lower than we'd expect. The reason for this depressed P/S could potentially be found in the risks the market is pricing in. While the possibility of the share price plunging seems unlikely due to the high growth forecasted for the company, the market does appear to have some hesitation.

Having said that, be aware hipages Group Holdings is showing 1 warning sign in our investment analysis, you should know about.

Of course, profitable companies with a history of great earnings growth are generally safer bets. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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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.