ISP Holdings Limited (HKG:2340) Soars 26% But It's A Story Of Risk Vs Reward

ISP Holdings Limited (HKG:2340) shareholders would be excited to see that the share price has had a great month, posting a 26% gain and recovering from prior weakness. But the gains over the last month weren't enough to make shareholders whole, as the share price is still down 3.7% in the last twelve months.

Even after such a large jump in price, it's still not a stretch to say that ISP Holdings' price-to-sales (or "P/S") ratio of 0.7x right now seems quite "middle-of-the-road" compared to the Real Estate industry in Hong Kong, where the median P/S ratio is around 0.6x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/S.

View our latest analysis for ISP Holdings

What Does ISP Holdings' P/S Mean For Shareholders?

While the industry has experienced revenue growth lately, ISP Holdings' revenue has gone into reverse gear, which is not great. Perhaps the market is expecting its poor revenue performance to improve, keeping the P/S from dropping. If not, then existing shareholders may be a little nervous about the viability of the share price.

Want the full picture on analyst estimates for the company? Then our free report on ISP Holdings will help you uncover what's on the horizon.

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

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

In reviewing the last year of financials, we were disheartened to see the company's revenues fell to the tune of 31%. As a result, revenue from three years ago have also fallen 60% overall. So unfortunately, we have to acknowledge that the company has not done a great job of growing revenue over that time.

Shifting to the future, estimates from the only analyst covering the company suggest revenue should grow by 22,152% over the next year. With the industry only predicted to deliver 3.9%, the company is positioned for a stronger revenue result.

With this information, we find it interesting that ISP Holdings is trading at a fairly similar P/S compared to the industry. Apparently some shareholders are skeptical of the forecasts and have been accepting lower selling prices.

The Final Word

Its shares have lifted substantially and now ISP Holdings' P/S is back within range of the industry median. 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.

Looking at ISP Holdings' analyst forecasts revealed that its superior revenue outlook isn't giving the boost to its P/S that we would've expected. There could be some risks that the market is pricing in, which is preventing the P/S ratio from matching the positive outlook. It appears some are indeed anticipating revenue instability, because these conditions should normally provide a boost to the share price.

It is also worth noting that we have found 1 warning sign for ISP Holdings that you need to take into consideration.

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.

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.