Stock Analysis

Further Upside For Rykadan Capital Limited (HKG:2288) Shares Could Introduce Price Risks After 30% Bounce

SEHK:2288
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Despite an already strong run, Rykadan Capital Limited (HKG:2288) shares have been powering on, with a gain of 30% in the last thirty days. Unfortunately, the gains of the last month did little to right the losses of the last year with the stock still down 41% over that time.

Although its price has surged higher, you could still be forgiven for feeling indifferent about Rykadan Capital's P/S ratio of 0.3x, since the median price-to-sales (or "P/S") ratio for the Real Estate industry in Hong Kong is also close to 0.6x. While this might not raise any eyebrows, if the P/S ratio is not justified investors could be missing out on a potential opportunity or ignoring looming disappointment.

Check out our latest analysis for Rykadan Capital

ps-multiple-vs-industry
SEHK:2288 Price to Sales Ratio vs Industry December 1st 2024

How Rykadan Capital Has Been Performing

Recent times have been quite advantageous for Rykadan Capital as its revenue has been rising very briskly. It might be that many expect the strong revenue performance to wane, which has kept the share price, and thus the P/S ratio, from rising. 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.

Although there are no analyst estimates available for Rykadan Capital, take a look at this free data-rich visualisation to see how the company stacks up on earnings, revenue and cash flow.

How Is Rykadan Capital's Revenue Growth Trending?

There's an inherent assumption that a company should be matching the industry for P/S ratios like Rykadan Capital's to be considered reasonable.

Taking a look back first, we see that the company's revenues underwent some rampant growth over the last 12 months. The amazing performance means it was also able to grow revenue by 92% in total over the last three years. So we can start by confirming that the company has done a great job of growing revenue over that time.

Comparing that to the industry, which is only predicted to deliver 6.7% growth in the next 12 months, the company's momentum is stronger based on recent medium-term annualised revenue results.

In light of this, it's curious that Rykadan Capital's P/S sits in line with the majority of other companies. It may be that most investors are not convinced the company can maintain its recent growth rates.

What Does Rykadan Capital's P/S Mean For Investors?

Rykadan Capital's 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 didn't quite envision Rykadan Capital's 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. There could be some unobserved threats to revenue preventing the P/S ratio from matching this positive performance. While recent revenue trends over the past medium-term suggest that the risk of a price decline is low, investors appear to see the likelihood of revenue fluctuations in the future.

It's always necessary to consider the ever-present spectre of investment risk. We've identified 3 warning signs with Rykadan Capital (at least 2 which are potentially serious), 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).

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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.