Some OKG Technology Holdings Limited (HKG:1499) Shareholders Look For Exit As Shares Take 26% Pounding

The OKG Technology Holdings Limited (HKG:1499) share price has fared very poorly over the last month, falling by a substantial 26%. Of course, over the longer-term many would still wish they owned shares as the stock's price has soared 152% in the last twelve months.

Even after such a large drop in price, you could still be forgiven for thinking OKG Technology Holdings is a stock to steer clear of with a price-to-sales ratios (or "P/S") of 4.4x, considering almost half the companies in Hong Kong's Construction industry have P/S ratios below 0.3x. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's so lofty.

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See our latest analysis for OKG Technology Holdings

What Does OKG Technology Holdings' P/S Mean For Shareholders?

Revenue has risen firmly for OKG Technology Holdings recently, which is pleasing to see. Perhaps the market is expecting this decent revenue performance to beat out the industry over the near term, which has kept the P/S propped up. However, if this isn't the case, investors might get caught out paying too much for the stock.

Although there are no analyst estimates available for OKG Technology Holdings, take a look at this free data-rich visualisation to see how the company stacks up on earnings, revenue and cash flow.

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

OKG Technology Holdings' P/S ratio would be typical for a company that's expected to deliver very strong growth, and importantly, perform much better than the industry.

If we review the last year of revenue growth, the company posted a terrific increase of 26%. Revenue has also lifted 10.0% in aggregate from three years ago, mostly thanks to the last 12 months of growth. Accordingly, shareholders would have probably been satisfied with the medium-term rates of revenue growth.

Comparing the recent medium-term revenue trends against the industry's one-year growth forecast of 18% shows it's noticeably less attractive.

In light of this, it's alarming that OKG Technology Holdings' P/S sits above the majority of other companies. Apparently many investors in the company are way more bullish than recent times would indicate and aren't willing to let go of their stock at any price. There's a good chance existing shareholders are setting themselves up for future disappointment if the P/S falls to levels more in line with recent growth rates.

The Key Takeaway

A significant share price dive has done very little to deflate OKG Technology Holdings' very lofty P/S. Typically, we'd caution against reading too much into price-to-sales ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

The fact that OKG Technology Holdings currently trades on a higher P/S relative to the industry is an oddity, since its recent three-year growth is lower than the wider industry forecast. When we see slower than industry revenue growth but an elevated P/S, there's considerable risk of the share price declining, sending the P/S lower. Unless the recent medium-term conditions improve markedly, it's very challenging to accept these the share price as being reasonable.

Don't forget that there may be other risks. For instance, we've identified 1 warning sign for OKG Technology Holdings that you should be aware of.

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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.