There's Reason For Concern Over B.Duck Semk Holdings International Limited's (HKG:2250) Massive 37% Price Jump

B.Duck Semk Holdings International Limited (HKG:2250) shares have had a really impressive month, gaining 37% after a shaky period beforehand. Notwithstanding the latest gain, the annual share price return of 5.9% isn't as impressive.

Since its price has surged higher, when almost half of the companies in Hong Kong's Professional Services industry have price-to-sales ratios (or "P/S") below 0.3x, you may consider B.Duck Semk Holdings International as a stock not worth researching with its 9.1x 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

What Does B.Duck Semk Holdings International's P/S Mean For Shareholders?

We'd have to say that with no tangible growth over the last year, B.Duck Semk Holdings International's revenue has been unimpressive. One possibility is that the P/S is high because investors think the benign revenue growth will improve to outperform the broader industry in the near future. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

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 B.Duck Semk Holdings International's earnings, revenue and cash flow.

Is There Enough Revenue Growth Forecasted For B.Duck Semk Holdings International?

In order to justify its P/S ratio, B.Duck Semk Holdings International would need to produce outstanding growth that's well in excess of the industry.

Retrospectively, the last year delivered virtually the same number to the company's top line as the year before. This isn't what shareholders were looking for as it means they've been left with a 55% decline in revenue over the last three years in total. Accordingly, shareholders would have felt downbeat about the medium-term rates of revenue growth.

Weighing that medium-term revenue trajectory against the broader industry's one-year forecast for expansion of 8.7% shows it's an unpleasant look.

With this in mind, we find it worrying that B.Duck Semk Holdings International's P/S exceeds that of its industry peers. It seems most investors are ignoring the recent poor growth rate and are hoping for a turnaround in the company's business prospects. There's a very 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 B.Duck Semk Holdings International's P/S Mean For Investors?

B.Duck Semk Holdings International's P/S has grown nicely over the last month thanks to a handy boost in the share price. While the price-to-sales ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of revenue expectations.

We've established that B.Duck Semk Holdings International currently trades on a much higher than expected P/S since its recent revenues have been in decline over the medium-term. Right now we aren't comfortable with the high P/S as this revenue performance is highly unlikely to support such positive sentiment for long. If recent medium-term revenue trends continue, it will place shareholders' investments at significant risk and potential investors in danger of paying an excessive premium.

It's always necessary to consider the ever-present spectre of investment risk. We've identified 1 warning sign with B.Duck Semk Holdings International, and understanding should be part of your investment process.

If you're unsure about the strength of B.Duck Semk Holdings International'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.