Slammed 25% OCI International Holdings Limited (HKG:329) Screens Well Here But There Might Be A Catch

OCI International Holdings Limited (HKG:329) shareholders that were waiting for something to happen have been dealt a blow with a 25% share price drop in the last month. The drop over the last 30 days has capped off a tough year for shareholders, with the share price down 21% in that time.

Although its price has dipped substantially, you could still be forgiven for feeling indifferent about OCI International Holdings' P/S ratio of 5.2x, since the median price-to-sales (or "P/S") ratio for the Capital Markets industry in Hong Kong is also close to 4.9x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/S.

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See our latest analysis for OCI International Holdings

What Does OCI International Holdings' P/S Mean For Shareholders?

Revenue has risen at a steady rate over the last year for OCI International Holdings, which is generally not a bad outcome. It might be that many expect the respectable revenue performance to only match most other companies over the coming period, which has kept the P/S from rising. If not, then at least existing shareholders probably aren't too pessimistic 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 OCI International Holdings will help you shine a light on its historical performance.

Is There Some Revenue Growth Forecasted For OCI International Holdings?

In order to justify its P/S ratio, OCI International Holdings would need to produce growth that's similar to the industry.

Retrospectively, the last year delivered a decent 3.8% gain to the company's revenues. Spectacularly, three year revenue growth has ballooned by several orders of magnitude, even though the last 12 months were fairly tame in comparison. Therefore, it's fair to say the revenue growth recently has been superb for the company.

This is in contrast to the rest of the industry, which is expected to grow by 16% over the next year, materially lower than the company's recent medium-term annualised growth rates.

With this information, we find it interesting that OCI International 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.

What Does OCI International Holdings' P/S Mean For Investors?

Following OCI International Holdings' share price tumble, its P/S is just clinging on to the industry median P/S. It's argued the price-to-sales ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

To our surprise, OCI International Holdings revealed its three-year revenue trends aren't contributing to its P/S as much as we would have predicted, given they look better than current industry expectations. It'd be fair to assume that potential risks the company faces could be the contributing factor to the lower than expected P/S. 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 3 warning signs with OCI International Holdings (at least 1 which can't be ignored), and understanding these should be part of your investment process.

If these risks are making you reconsider your opinion on OCI International Holdings, explore our interactive list of high quality stocks to get an idea of what else is out there.

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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.