Some Cybernaut International Holdings Company Limited (HKG:1020) Shareholders Look For Exit As Shares Take 28% Pounding

Cybernaut International Holdings Company Limited (HKG:1020) shares have had a horrible month, losing 28% after a relatively good period beforehand. Instead of being rewarded, shareholders who have already held through the last twelve months are now sitting on a 21% share price drop.

Even after such a large drop in price, given close to half the companies operating in Hong Kong's Specialty Retail industry have price-to-sales ratios (or "P/S") below 0.5x, you may still consider Cybernaut International Holdings as a stock to potentially avoid with its 2x P/S ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the elevated P/S.

See our latest analysis for Cybernaut International Holdings

How Cybernaut International Holdings Has Been Performing

With revenue growth that's exceedingly strong of late, Cybernaut International Holdings has been doing very well. The P/S ratio is probably high because investors think this strong revenue growth will be enough to outperform the broader industry in the near future. However, if this isn't the case, investors might get caught out paying too much for the stock.

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

How Is Cybernaut International Holdings' Revenue Growth Trending?

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

Retrospectively, the last year delivered an exceptional 76% gain to the company's top line. Still, revenue has fallen 44% in total from three years ago, which is quite disappointing. So unfortunately, we have to acknowledge that the company has not done a great job of growing revenues over that time.

In contrast to the company, the rest of the industry is expected to grow by 34% over the next year, which really puts the company's recent medium-term revenue decline into perspective.

In light of this, it's alarming that Cybernaut International Holdings' P/S sits above the majority of other companies. Apparently many investors in the company are way more bullish than recent times would indicate and aren't willing to let go of their stock at any price. There's a very good chance existing shareholders are setting themselves up for future disappointment if the P/S falls to levels more in line with the recent negative growth rates.

What We Can Learn From Cybernaut International Holdings' P/S?

There's still some elevation in Cybernaut International Holdings' P/S, even if the same can't be said for its share price recently. It's argued the price-to-sales ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

We've established that Cybernaut International Holdings currently trades on a much higher than expected P/S since its recent revenues have been in decline over the medium-term. When we see revenue heading backwards and underperforming the industry forecasts, we feel the possibility of the share price declining is very real, bringing the P/S back into the realm of reasonability. Unless the the circumstances surrounding the recent medium-term improve, it wouldn't be wrong to expect a a difficult period ahead for the company's shareholders.

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

If you're unsure about the strength of Cybernaut International 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.