There's Reason For Concern Over AGTech Holdings Limited's (HKG:8279) Price

When close to half the companies in the Diversified Financial industry in Hong Kong have price-to-sales ratios (or "P/S") below 2.1x, you may consider AGTech Holdings Limited (HKG:8279) as a stock to avoid entirely with its 4.3x 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 AGTech Holdings

What Does AGTech Holdings' Recent Performance Look Like?

For example, consider that AGTech Holdings' financial performance has been pretty ordinary lately as revenue growth is non-existent. It might be that many are expecting an improvement to the uninspiring revenue performance over the coming period, which has kept the P/S from collapsing. However, if this isn't the case, investors might get caught out paying too much for the stock.

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

Is There Enough Revenue Growth Forecasted For AGTech Holdings?

In order to justify its P/S ratio, AGTech Holdings 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. Although pleasingly revenue has lifted 130% in aggregate from three years ago, notwithstanding the last 12 months. Accordingly, shareholders will be pleased, but also have some questions to ponder about the last 12 months.

Comparing that to the industry, which is predicted to deliver 30% growth in the next 12 months, the company's momentum is pretty similar based on recent medium-term annualised revenue results.

With this in mind, we find it intriguing that AGTech Holdings' P/S exceeds that of its industry peers. It seems most investors are ignoring the fairly average recent growth rates and are willing to pay up for exposure to the stock. Nevertheless, they may be setting themselves up for future disappointment if the P/S falls to levels more in line with recent growth rates.

What Does AGTech Holdings' P/S Mean For Investors?

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.

Our examination of AGTech Holdings revealed its three-year revenue trends aren't impacting its high P/S as much as we would have predicted, given they look similar to current industry expectations. Right now we are uncomfortable with the high P/S as this revenue performance isn't likely to support such positive sentiment for long. Unless the recent medium-term conditions improve, it's challenging to accept these prices as being reasonable.

Many other vital risk factors can be found on the company's balance sheet. Take a look at our free balance sheet analysis for AGTech Holdings with six simple checks on some of these key factors.

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.