Potential Upside For Nimble Holdings Company Limited (HKG:186) Not Without Risk

It's not a stretch to say that Nimble Holdings Company Limited's (HKG:186) price-to-sales (or "P/S") ratio of 0.5x right now seems quite "middle-of-the-road" for companies in the Retail Distributors industry in Hong Kong, where the median P/S ratio is around 0.7x. Although, it's not wise to simply ignore the P/S without explanation as investors may be disregarding a distinct opportunity or a costly mistake.

Check out our latest analysis for Nimble Holdings

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

With revenue growth that's exceedingly strong of late, Nimble Holdings has been doing very well. The P/S is probably moderate because investors think this strong revenue growth might not be enough to outperform the broader industry in the near future. 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.

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

How Is Nimble Holdings' Revenue Growth Trending?

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

Retrospectively, the last year delivered an explosive gain to the company's top line. Spectacularly, three year revenue growth has also set the world alight, thanks to the last 12 months of incredible growth. Accordingly, shareholders would have been over the moon with those medium-term rates of revenue growth.

Comparing that recent medium-term revenue trajectory with the industry's one-year growth forecast of 30% shows it's noticeably more attractive.

In light of this, it's curious that Nimble Holdings' P/S sits in line with the majority of other companies. Apparently some shareholders believe the recent performance is at its limits and have been accepting lower selling prices.

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

Using the price-to-sales ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

We've established that Nimble Holdings currently trades on a lower than expected P/S since its recent three-year growth is higher than the wider industry forecast. When we see strong revenue with faster-than-industry growth, we can only assume potential risks are what might be placing pressure on the P/S ratio. It appears some are indeed anticipating revenue instability, because the persistence of these recent medium-term conditions would normally provide a boost to the share price.

You need to take note of risks, for example - Nimble Holdings has 3 warning signs (and 1 which shouldn't be ignored) we think you should know about.

If companies with solid past earnings growth is up your alley, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

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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.

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