Gemini Investments (Holdings) Limited's (HKG:174) Subdued P/S Might Signal An Opportunity

With a price-to-sales (or "P/S") ratio of 0.2x Gemini Investments (Holdings) Limited (HKG:174) may be sending very bullish signals at the moment, given that almost half of all the Capital Markets companies in Hong Kong have P/S ratios greater than 2.5x and even P/S higher than 10x are not unusual. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's so limited.

Check out our latest analysis for Gemini Investments (Holdings)

How Gemini Investments (Holdings) Has Been Performing

We'd have to say that with no tangible growth over the last year, Gemini Investments (Holdings)'s revenue has been unimpressive. One possibility is that the P/S is low because investors think this benign revenue growth rate will likely underperform the broader industry in the near future. If not, then existing shareholders may be feeling optimistic about the future direction of the share price.

Want the full picture on earnings, revenue and cash flow for the company? Then our free report on Gemini Investments (Holdings) will help you shine a light on its historical performance.

Is There Any Revenue Growth Forecasted For Gemini Investments (Holdings)?

There's an inherent assumption that a company should far underperform the industry for P/S ratios like Gemini Investments (Holdings)'s to be considered reasonable.

Taking a look back first, we see that there was hardly any revenue growth to speak of for the company over the past year. The latest three year period has seen an incredible overall rise in revenue, in spite of this mediocre revenue growth of late. So while the company has done a great job in the past, it's somewhat concerning to see revenue growth decline so harshly.

Comparing that to the industry, which is only predicted to deliver 40% growth in the next 12 months, the company's momentum is stronger based on recent medium-term annualised revenue results.

With this in mind, we find it intriguing that Gemini Investments (Holdings)'s P/S isn't as high compared to that of its industry peers. Apparently some shareholders believe the recent performance has exceeded its limits and have been accepting significantly lower selling prices.

The Final Word

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.

We're very surprised to see Gemini Investments (Holdings) currently trading on a much lower than expected P/S since its recent three-year growth is higher than the wider industry forecast. When we see strong revenue with faster-than-industry growth, we assume there are some significant underlying risks to the company's ability to make money which is applying downwards pressure on the P/S ratio. While recent revenue trends over the past medium-term suggest that the risk of a price decline is low, investors appear to perceive a likelihood of revenue fluctuations in the future.

Plus, you should also learn about these 3 warning signs we've spotted with Gemini Investments (Holdings) (including 2 which are concerning).

Of course, profitable companies with a history of great earnings growth are generally safer bets. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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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.