With A 26% Price Drop For Ubtech Robotics Corp Ltd (HKG:9880) You'll Still Get What You Pay For

To the annoyance of some shareholders, Ubtech Robotics Corp Ltd (HKG:9880) shares are down a considerable 26% in the last month, which continues a horrid run for the company. Longer-term shareholders will rue the drop in the share price, since it's now virtually flat for the year after a promising few quarters.

Although its price has dipped substantially, when almost half of the companies in Hong Kong's Machinery industry have price-to-sales ratios (or "P/S") below 0.7x, you may still consider Ubtech Robotics as a stock not worth researching with its 46.1x P/S ratio. 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.

Check out our latest analysis for Ubtech Robotics

How Ubtech Robotics Has Been Performing

With revenue growth that's inferior to most other companies of late, Ubtech Robotics has been relatively sluggish. One possibility is that the P/S ratio is high because investors think this lacklustre revenue performance will improve markedly. If not, then existing shareholders may be very nervous about the viability of the share price.

Want the full picture on analyst estimates for the company? Then our free report on Ubtech Robotics will help you uncover what's on the horizon.

Is There Enough Revenue Growth Forecasted For Ubtech Robotics?

In order to justify its P/S ratio, Ubtech Robotics would need to produce outstanding growth that's well in excess of the industry.

Taking a look back first, we see that the company managed to grow revenues by a handy 4.7% last year. Pleasingly, revenue has also lifted 43% in aggregate from three years ago, partly thanks to the last 12 months of growth. Therefore, it's fair to say the revenue growth recently has been superb for the company.

Shifting to the future, estimates from the sole analyst covering the company suggest revenue should grow by 43% per annum over the next three years. That's shaping up to be materially higher than the 17% each year growth forecast for the broader industry.

With this in mind, it's not hard to understand why Ubtech Robotics' P/S is high relative to its industry peers. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.

The Key Takeaway

A significant share price dive has done very little to deflate Ubtech Robotics' very lofty P/S. 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.

As we suspected, our examination of Ubtech Robotics' analyst forecasts revealed that its superior revenue outlook is contributing to its high P/S. It appears that shareholders are confident in the company's future revenues, which is propping up the P/S. Unless the analysts have really missed the mark, these strong revenue forecasts should keep the share price buoyant.

Don't forget that there may be other risks. For instance, we've identified 2 warning signs for Ubtech Robotics (1 is a bit concerning) you should be aware of.

If you're unsure about the strength of Ubtech Robotics' 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.

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