SingAsia Holdings Limited (HKG:8293) Screens Well But There Might Be A Catch

It's not a stretch to say that SingAsia Holdings Limited's (HKG:8293) price-to-sales (or "P/S") ratio of 0.1x right now seems quite "middle-of-the-road" for companies in the Professional Services industry in Hong Kong, where the median P/S ratio is around 0.5x. 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 SingAsia Holdings

How SingAsia Holdings Has Been Performing

We'd have to say that with no tangible growth over the last year, SingAsia Holdings' revenue has been unimpressive. It might be that many expect the uninspiring revenue performance to only match most other companies at best over the coming period, which has kept the P/S from rising. Those who are bullish on SingAsia Holdings will be hoping that this isn't the case, so that they can pick up the stock at a lower valuation.

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 SingAsia Holdings' earnings, revenue and cash flow.

Do Revenue Forecasts Match The P/S Ratio?

The only time you'd be comfortable seeing a P/S like SingAsia Holdings' is when the company's growth is tracking the industry closely.

Retrospectively, the last year delivered virtually the same number to the company's top line as the year before. However, a few strong years before that means that it was still able to grow revenue by an impressive 130% in total over the last three years. Therefore, it's fair to say the revenue growth recently has been great for the company, but investors will want to ask why it has slowed to such an extent.

Comparing that to the industry, which is only predicted to deliver 18% growth in the next 12 months, the company's momentum is stronger based on recent medium-term annualised revenue results.

With this information, we find it interesting that SingAsia Holdings is trading at a fairly similar P/S compared to the industry. Apparently some shareholders believe the recent performance is at its limits and have been accepting lower selling prices.

The Bottom Line On SingAsia Holdings' P/S

Generally, our preference is to limit the use of the price-to-sales ratio to establishing what the market thinks about the overall health of a company.

We didn't quite envision SingAsia Holdings' P/S sitting in line with the wider industry, considering the revenue growth over the last three-year is higher than the current industry outlook. 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. It appears some are indeed anticipating revenue instability, because the persistence of these recent medium-term conditions would normally provide a boost to the share price.

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

If companies with solid past earnings growth is up your alley, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

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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.