HBM Holdings Limited (HKG:2142) Surges 25% Yet Its Low P/S Is No Reason For Excitement

Despite an already strong run, HBM Holdings Limited (HKG:2142) shares have been powering on, with a gain of 25% in the last thirty days. Not all shareholders will be feeling jubilant, since the share price is still down a very disappointing 31% in the last twelve months.

In spite of the firm bounce in price, HBM Holdings may still look like a strong buying opportunity at present with its price-to-sales (or "P/S") ratio of 3.4x, considering almost half of all companies in the Biotechs industry in Hong Kong have P/S ratios greater than 12.7x and even P/S higher than 37x aren't out of the ordinary. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's so limited.

Check out our latest analysis for HBM Holdings

What Does HBM Holdings' Recent Performance Look Like?

Recent times have been quite advantageous for HBM Holdings as its revenue has been rising very briskly. Perhaps the market is expecting future revenue performance to dwindle, which has kept the P/S suppressed. Those who are bullish on HBM Holdings will be hoping that this isn't the case, so that they can pick up the stock at a lower valuation.

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 HBM Holdings' earnings, revenue and cash flow.

Is There Any Revenue Growth Forecasted For HBM Holdings?

The only time you'd be truly comfortable seeing a P/S as depressed as HBM Holdings' is when the company's growth is on track to lag the industry decidedly.

Retrospectively, the last year delivered an exceptional 82% gain to the company's top line. The latest three year period has also seen an incredible overall rise in revenue, aided by its incredible short-term performance. Accordingly, shareholders would have been over the moon with those medium-term rates of revenue growth.

This is in contrast to the rest of the industry, which is expected to grow by 84% over the next year, materially higher than the company's recent medium-term annualised growth rates.

In light of this, it's understandable that HBM Holdings' P/S sits below the majority of other companies. It seems most investors are expecting to see the recent limited growth rates continue into the future and are only willing to pay a reduced amount for the stock.

The Bottom Line On HBM Holdings' P/S

Shares in HBM Holdings have risen appreciably however, its P/S is still subdued. 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.

As we suspected, our examination of HBM Holdings revealed its three-year revenue trends are contributing to its low P/S, given they look worse than current industry expectations. Right now shareholders are accepting the low P/S as they concede future revenue probably won't provide any pleasant surprises. Unless the recent medium-term conditions improve, they will continue to form a barrier for the share price around these levels.

It's always necessary to consider the ever-present spectre of investment risk. We've identified 2 warning signs with HBM Holdings (at least 1 which is a bit unpleasant), and understanding them should be part of your investment process.

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).

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

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.