Some Unity Enterprise Holdings Limited (HKG:2195) Shareholders Look For Exit As Shares Take 37% Pounding

To the annoyance of some shareholders, Unity Enterprise Holdings Limited (HKG:2195) shares are down a considerable 37% in the last month, which continues a horrid run for the company. For any long-term shareholders, the last month ends a year to forget by locking in a 87% share price decline.

Even after such a large drop in price, it's still not a stretch to say that Unity Enterprise Holdings' price-to-sales (or "P/S") ratio of 0.6x right now seems quite "middle-of-the-road" compared to the Construction industry in Hong Kong, where the median P/S ratio is around 0.3x. While this might not raise any eyebrows, if the P/S ratio is not justified investors could be missing out on a potential opportunity or ignoring looming disappointment.

View our latest analysis for Unity Enterprise Holdings

What Does Unity Enterprise Holdings' Recent Performance Look Like?

Recent times have been quite advantageous for Unity Enterprise Holdings as its revenue has been rising very briskly. Perhaps the market is expecting future revenue performance to taper off, which has kept the P/S from rising. If that doesn't eventuate, then existing shareholders have reason to be feeling optimistic about the future direction of the share price.

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

How Is Unity Enterprise Holdings' Revenue Growth Trending?

In order to justify its P/S ratio, Unity Enterprise Holdings would need to produce growth that's similar to the industry.

Retrospectively, the last year delivered an exceptional 76% gain to the company's top line. However, this wasn't enough as the latest three year period has seen the company endure a nasty 58% drop in revenue in aggregate. So unfortunately, we have to acknowledge that the company has not done a great job of growing revenues over that time.

Comparing that to the industry, which is predicted to deliver 9.9% growth in the next 12 months, the company's downward momentum based on recent medium-term revenue results is a sobering picture.

In light of this, it's somewhat alarming that Unity Enterprise Holdings' 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. 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 the recent negative growth rates.

The Final Word

Unity Enterprise Holdings' plummeting stock price has brought its P/S back to a similar region as the rest of 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.

The fact that Unity Enterprise Holdings currently trades at a P/S on par with the rest of the industry is surprising to us since its recent revenues have been in decline over the medium-term, all while the industry is set to grow. When we see revenue heading backwards in the context of growing industry forecasts, it'd make sense to expect a possible share price decline on the horizon, sending the moderate P/S lower. Unless the recent medium-term conditions improve markedly, investors will have a hard time accepting the share price as fair value.

And what about other risks? Every company has them, and we've spotted 4 warning signs for Unity Enterprise Holdings (of which 1 doesn't sit too well with us!) you should know about.

If these risks are making you reconsider your opinion on Unity Enterprise 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.