There's Reason For Concern Over Pan Asia Data Holdings Inc.'s (HKG:1561) Massive 32% Price Jump

The Pan Asia Data Holdings Inc. (HKG:1561) share price has done very well over the last month, posting an excellent gain of 32%. Still, the 30-day jump doesn't change the fact that longer term shareholders have seen their stock decimated by the 80% share price drop in the last twelve months.

Although its price has surged higher, you could still be forgiven for feeling indifferent about Pan Asia Data Holdings' P/S ratio of 0.4x, since the median price-to-sales (or "P/S") ratio for the Chemicals industry in Hong Kong is about the same. While this might not raise any eyebrows, if the P/S ratio is not justified investors could be missing out on a potential opportunity or ignoring looming disappointment.

See our latest analysis for Pan Asia Data Holdings

How Has Pan Asia Data Holdings Performed Recently?

Revenue has risen firmly for Pan Asia Data Holdings recently, which is pleasing to see. One possibility is that the P/S is moderate because investors think this respectable revenue growth might not be enough to outperform the broader industry in the near future. If you like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's not quite in favour.

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 Pan Asia Data Holdings' earnings, revenue and cash flow.

What Are Revenue Growth Metrics Telling Us About The P/S?

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

Taking a look back first, we see that the company grew revenue by an impressive 28% last year. However, this wasn't enough as the latest three year period has seen the company endure a nasty 9.4% drop in revenue in aggregate. 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 35% shows it's an unpleasant look.

With this in mind, we find it worrying that Pan Asia Data Holdings' P/S exceeds that of its industry peers. Apparently many investors in the company are way less bearish than recent times would indicate and aren't willing to let go of their stock right now. There's a 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 Pan Asia Data Holdings' P/S Mean For Investors?

Pan Asia Data Holdings appears to be back in favour with a solid price jump bringing its P/S back in line with other companies in the industry We'd say the price-to-sales ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

Our look at Pan Asia Data Holdings revealed its shrinking revenues over the medium-term haven't impacted the P/S as much as we anticipated, given the industry is set to grow. Even though it matches the industry, we're uncomfortable with the current P/S ratio, as this dismal revenue performance is unlikely to support a more positive sentiment for long. Unless the the circumstances surrounding the recent medium-term improve, it wouldn't be wrong to expect a a difficult period ahead for the company's shareholders.

Before you settle on your opinion, we've discovered 4 warning signs for Pan Asia Data Holdings (1 can't be ignored!) that you should be aware of.

If strong companies turning a profit tickle your fancy, then you'll want to check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).

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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.