Coolpoint Innonism Holding Limited (HKG:8040) Might Not Be As Mispriced As It Looks After Plunging 38%

Coolpoint Innonism Holding Limited (HKG:8040) shareholders that were waiting for something to happen have been dealt a blow with a 38% share price drop in the last month. The drop over the last 30 days has capped off a tough year for shareholders, with the share price down 47% in that time.

In spite of the heavy fall in price, there still wouldn't be many who think Coolpoint Innonism Holding's price-to-sales (or "P/S") ratio of 0.3x is worth a mention when it essentially matches the median P/S in Hong Kong's Construction industry. Although, it's not wise to simply ignore the P/S without explanation as investors may be disregarding a distinct opportunity or a costly mistake.

See our latest analysis for Coolpoint Innonism Holding

How Has Coolpoint Innonism Holding Performed Recently?

Revenue has risen firmly for Coolpoint Innonism Holding recently, which is pleasing to see. One possibility is that the P/S is moderate because investors think this respectable revenue growth might not be enough to outperform the broader industry in the near future. If you like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's not quite in favour.

Although there are no analyst estimates available for Coolpoint Innonism Holding, 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 P/S?

In order to justify its P/S ratio, Coolpoint Innonism Holding would need to produce growth that's similar to the industry.

If we review the last year of revenue growth, the company posted a terrific increase of 18%. The strong recent performance means it was also able to grow revenue by 83% in total over the last three years. Accordingly, shareholders would have definitely welcomed those medium-term rates of revenue growth.

This is in contrast to the rest of the industry, which is expected to grow by 8.8% over the next year, materially lower than the company's recent medium-term annualised growth rates.

With this information, we find it interesting that Coolpoint Innonism Holding is trading at a fairly similar P/S compared to the industry. It may be that most investors are not convinced the company can maintain its recent growth rates.

The Final Word

With its share price dropping off a cliff, the P/S for Coolpoint Innonism Holding looks to be in line with the rest of the Construction industry. 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.

To our surprise, Coolpoint Innonism Holding revealed its three-year revenue trends aren't contributing to its P/S as much as we would have predicted, given they look better than current industry expectations. When we see strong revenue with faster-than-industry growth, we can only assume potential risks are what might be placing pressure on the P/S ratio. At least the risk of a price drop looks to be subdued if recent medium-term revenue trends continue, but investors seem to think future revenue could see some volatility.

Don't forget that there may be other risks. For instance, we've identified 3 warning signs for Coolpoint Innonism Holding (2 can't be ignored) you should be aware of.

If you're unsure about the strength of Coolpoint Innonism Holding's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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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.