Risks Still Elevated At These Prices As Reliance Global Holdings Limited (HKG:723) Shares Dive 33%

Reliance Global Holdings Limited (HKG:723) shares have retraced a considerable 33% in the last month, reversing a fair amount of their solid recent performance. Still, a bad month hasn't completely ruined the past year with the stock gaining 36%, which is great even in a bull market.

Although its price has dipped substantially, you could still be forgiven for feeling indifferent about Reliance Global Holdings' P/S ratio of 1.5x, since the median price-to-sales (or "P/S") ratio for the Forestry industry in Hong Kong is also close to 1.4x. 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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View our latest analysis for Reliance Global Holdings

How Reliance Global Holdings Has Been Performing

For instance, Reliance Global Holdings' receding revenue in recent times would have to be some food for thought. One possibility is that the P/S is moderate because investors think the company might still do enough to be in line with the broader industry in the near future. 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.

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

Is There Some Revenue Growth Forecasted For Reliance Global Holdings?

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

Retrospectively, the last year delivered a frustrating 43% decrease to the company's top line. As a result, revenue from three years ago have also fallen 77% overall. Therefore, it's fair to say the revenue growth recently has been undesirable for the company.

In contrast to the company, the rest of the industry is expected to grow by 14% over the next year, which really puts the company's recent medium-term revenue decline into perspective.

In light of this, it's somewhat alarming that Reliance Global Holdings' P/S sits in line with the majority of other companies. 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.

The Bottom Line On Reliance Global Holdings' P/S

Reliance Global Holdings' plummeting stock price has brought its P/S back to a similar region as the rest of the industry. 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.

Our look at Reliance Global 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. 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 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.

You need to take note of risks, for example - Reliance Global Holdings has 3 warning signs (and 2 which are concerning) we think you should know about.

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.