Rare Earth Magnesium Technology Group Holdings Limited (HKG:601) Stock Rockets 30% As Investors Are Less Pessimistic Than Expected

Rare Earth Magnesium Technology Group Holdings Limited (HKG:601) shares have had a really impressive month, gaining 30% after a shaky period beforehand. Still, the 30-day jump doesn't change the fact that longer term shareholders have seen their stock decimated by the 67% share price drop in the last twelve months.

Although its price has surged higher, there still wouldn't be many who think Rare Earth Magnesium Technology Group Holdings' price-to-sales (or "P/S") ratio of 0.2x is worth a mention when the median P/S in Hong Kong's Metals and Mining industry is similar at about 0.4x. Although, it's not wise to simply ignore the P/S without explanation as investors may be disregarding a distinct opportunity or a costly mistake.

Check out our latest analysis for Rare Earth Magnesium Technology Group Holdings

How Has Rare Earth Magnesium Technology Group Holdings Performed Recently?

For instance, Rare Earth Magnesium Technology Group Holdings' receding revenue in recent times would have to be some food for thought. Perhaps investors believe the recent revenue performance is enough to keep in line with the industry, which is keeping the P/S from dropping off. If you like the company, you'd at least be hoping this is 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 Rare Earth Magnesium Technology Group 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 Rare Earth Magnesium Technology Group Holdings' is when the company's growth is tracking the industry closely.

Retrospectively, the last year delivered a frustrating 31% decrease to the company's top line. This means it has also seen a slide in revenue over the longer-term as revenue is down 65% in total over the last three years. 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 7.9% shows it's an unpleasant look.

With this in mind, we find it worrying that Rare Earth Magnesium Technology Group Holdings' P/S exceeds that of its industry peers. It seems most investors are ignoring the recent poor growth rate and are hoping for a turnaround in the company's business prospects. 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 We Can Learn From Rare Earth Magnesium Technology Group Holdings' P/S?

Rare Earth Magnesium Technology Group Holdings' stock has a lot of momentum behind it lately, which has brought its P/S level with the rest of the industry. 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 find it unexpected that Rare Earth Magnesium Technology Group Holdings trades at a P/S ratio that is comparable to the rest of the industry, despite experiencing declining revenues during the medium-term, while the industry as a whole is expected to grow. When we see revenue heading backwards in the context of growing industry forecasts, it'd make sense to expect a possible share price decline on the horizon, sending the moderate P/S lower. Unless the recent medium-term conditions improve markedly, investors will have a hard time accepting the share price as fair value.

Plus, you should also learn about these 3 warning signs we've spotted with Rare Earth Magnesium Technology Group Holdings (including 2 which are significant).

If you're unsure about the strength of Rare Earth Magnesium Technology Group Holdings' business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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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.