AM Group Holdings Limited's (HKG:1849) Shares Leap 53% Yet They're Still Not Telling The Full Story

AM Group Holdings Limited (HKG:1849) shareholders are no doubt pleased to see that the share price has bounced 53% in the last month, although it is still struggling to make up recently lost ground. But the last month did very little to improve the 69% share price decline over the last year.

Although its price has surged higher, there still wouldn't be many who think AM 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 Media industry is similar at about 0.6x. 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 AM Group Holdings

What Does AM Group Holdings' P/S Mean For Shareholders?

AM Group Holdings has been doing a decent job lately as it's been growing revenue at a reasonable pace. Perhaps the expectation moving forward is that the revenue growth will track in line with the wider industry for the near term, which has kept the P/S subdued. 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 AM Group Holdings' earnings, revenue and cash flow.

Is There Some Revenue Growth Forecasted For AM Group Holdings?

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

Taking a look back first, we see that the company managed to grow revenues by a handy 4.4% last year. Pleasingly, revenue has also lifted 56% in aggregate from three years ago, partly thanks to the last 12 months of growth. Therefore, it's fair to say the revenue growth recently has been superb for the company.

When compared to the industry's one-year growth forecast of 9.8%, the most recent medium-term revenue trajectory is noticeably more alluring

With this information, we find it interesting that AM Group 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.

The Bottom Line On AM Group Holdings' P/S

AM Group Holdings' stock has a lot of momentum behind it lately, which has brought its P/S level with the rest of the industry. 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.

We didn't quite envision AM Group Holdings' P/S sitting in line with the wider industry, considering the revenue growth over the last three-year is higher than the current industry outlook. It'd be fair to assume that potential risks the company faces could be the contributing factor to the lower than expected P/S. At least the risk of a price drop looks to be subdued if recent medium-term revenue trends continue, but investors seem to think future revenue could see some volatility.

You always need to take note of risks, for example - AM Group Holdings has 3 warning signs we think you should be aware of.

It's important to make sure you look for a great company, not just the first idea you come across. So if growing profitability aligns with your idea of a great company, take a peek at this free list of interesting companies with strong recent earnings growth (and a low P/E).

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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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com