There's No Escaping Netjoy Holdings Limited's (HKG:2131) Muted Revenues Despite A 31% Share Price Rise

Despite an already strong run, Netjoy Holdings Limited (HKG:2131) shares have been powering on, with a gain of 31% in the last thirty days. Not all shareholders will be feeling jubilant, since the share price is still down a very disappointing 27% in the last twelve months.

Although its price has surged higher, considering around half the companies operating in Hong Kong's Media industry have price-to-sales ratios (or "P/S") above 0.7x, you may still consider Netjoy Holdings as an solid investment opportunity with its 0.2x P/S ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/S.

Check out our latest analysis for Netjoy Holdings

How Has Netjoy Holdings Performed Recently?

For instance, Netjoy Holdings' receding revenue in recent times would have to be some food for thought. It might be that many expect the disappointing revenue performance to continue or accelerate, which has repressed the P/S. 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 out of favour.

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

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

In order to justify its P/S ratio, Netjoy Holdings would need to produce sluggish growth that's trailing the industry.

Retrospectively, the last year delivered a frustrating 9.1% decrease to the company's top line. That put a dampener on the good run it was having over the longer-term as its three-year revenue growth is still a noteworthy 17% in total. So we can start by confirming that the company has generally done a good job of growing revenue over that time, even though it had some hiccups along the way.

This is in contrast to the rest of the industry, which is expected to grow by 11% over the next year, materially higher than the company's recent medium-term annualised growth rates.

With this in consideration, it's easy to understand why Netjoy Holdings' P/S falls short of the mark set by its industry peers. Apparently many shareholders weren't comfortable holding on to something they believe will continue to trail the wider industry.

What We Can Learn From Netjoy Holdings' P/S?

Netjoy Holdings' stock price has surged recently, but its but its P/S still remains modest. 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.

As we suspected, our examination of Netjoy Holdings revealed its three-year revenue trends are contributing to its low P/S, given they look worse than current industry expectations. At this stage investors feel the potential for an improvement in revenue isn't great enough to justify a higher P/S ratio. If recent medium-term revenue trends continue, it's hard to see the share price experience a reversal of fortunes anytime soon.

And what about other risks? Every company has them, and we've spotted 4 warning signs for Netjoy Holdings (of which 1 is concerning!) you should know about.

If you're unsure about the strength of Netjoy 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.