B.Duck Semk Holdings International Limited (HKG:2250) Shares May Have Slumped 27% But Getting In Cheap Is Still Unlikely

The B.Duck Semk Holdings International Limited (HKG:2250) share price has fared very poorly over the last month, falling by a substantial 27%. 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 Professional Services industry have price-to-sales ratios (or "P/S") below 0.9x, you may still consider B.Duck Semk Holdings International as a stock not worth researching with its 6.8x P/S ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly elevated P/S.

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See our latest analysis for B.Duck Semk Holdings International

How Has B.Duck Semk Holdings International Performed Recently?

Revenue has risen firmly for B.Duck Semk Holdings International 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. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

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

How Is B.Duck Semk Holdings International's Revenue Growth Trending?

There's an inherent assumption that a company should far outperform the industry for P/S ratios like B.Duck Semk Holdings International's to be considered reasonable.

Taking a look back first, we see that the company managed to grow revenues by a handy 13% last year. Still, lamentably revenue has fallen 40% in aggregate from three years ago, which is disappointing. Accordingly, shareholders would have felt downbeat about the medium-term rates of revenue growth.

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.

With this information, we find it concerning that B.Duck Semk Holdings International is trading at a P/S higher than the industry. It seems most investors are ignoring the recent poor growth rate and are hoping for a turnaround in the company's business prospects. Only the boldest would assume these prices are sustainable as a continuation of recent revenue trends is likely to weigh heavily on the share price eventually.

The Final Word

B.Duck Semk Holdings International's shares may have suffered, but its P/S remains high. 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.

Our examination of B.Duck Semk Holdings International revealed its shrinking revenue over the medium-term isn't resulting in a P/S as low as we expected, given the industry is set to grow. When we see revenue heading backwards and underperforming the industry forecasts, we feel the possibility of the share price declining is very real, bringing the P/S back into the realm of reasonability. Unless the recent medium-term conditions improve markedly, investors will have a hard time accepting the share price as fair value.

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

It's important to make sure you look for a great company, not just the first idea you come across. So if growing profitability aligns with your idea of a great company, take a peek at this free list of interesting companies with strong recent earnings growth (and a low P/E).

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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.