Golden Power Group Holdings Limited's (HKG:3919) Shares Climb 28% But Its Business Is Yet to Catch Up

The Golden Power Group Holdings Limited (HKG:3919) share price has done very well over the last month, posting an excellent gain of 28%. Not all shareholders will be feeling jubilant, since the share price is still down a very disappointing 17% in the last twelve months.

In spite of the firm bounce in price, there still wouldn't be many who think Golden Power Group Holdings' price-to-sales (or "P/S") ratio of 0.1x is worth a mention when the median P/S in Hong Kong's Electrical industry is similar at about 0.6x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/S.

See our latest analysis for Golden Power Group Holdings

How Golden Power Group Holdings Has Been Performing

As an illustration, revenue has deteriorated at Golden Power Group Holdings over the last year, which is not ideal at all. Perhaps investors believe the recent revenue performance is enough to keep in line with the industry, which is keeping the P/S from dropping off. If you like the company, you'd at least be hoping this is the case so that you could potentially pick up some stock while it's not quite in favour.

We don't have analyst forecasts, but you can see how recent trends are setting up the company for the future by checking out our free report on Golden Power Group Holdings' earnings, revenue and cash flow.

Is There Some Revenue Growth Forecasted For Golden Power Group Holdings?

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

Taking a look back first, the company's revenue growth last year wasn't something to get excited about as it posted a disappointing decline of 18%. This means it has also seen a slide in revenue over the longer-term as revenue is down 14% in total over the last three years. Accordingly, shareholders would have felt downbeat about the medium-term rates of revenue growth.

In contrast to the company, the rest of the industry is expected to grow by 20% over the next year, which really puts the company's recent medium-term revenue decline into perspective.

In light of this, it's somewhat alarming that Golden Power Group 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.

What Does Golden Power Group Holdings' P/S Mean For Investors?

Golden Power Group Holdings' stock has a lot of momentum behind it lately, which has brought its P/S level with 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.

Our look at Golden Power Group Holdings revealed its shrinking revenues over the medium-term haven't impacted the P/S as much as we anticipated, given the industry is set to grow. Even though it matches the industry, we're uncomfortable with the current P/S ratio, as this dismal revenue performance is unlikely to support a more positive sentiment for long. Unless the recent medium-term conditions improve markedly, investors will have a hard time accepting the share price as fair value.

Having said that, be aware Golden Power Group Holdings is showing 4 warning signs in our investment analysis, and 3 of those are a bit unpleasant.

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

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.