Risecomm Group Holdings Limited's (HKG:1679) 28% Dip In Price Shows Sentiment Is Matching Revenues

To the annoyance of some shareholders, Risecomm Group Holdings Limited (HKG:1679) shares are down a considerable 28% in the last month, which continues a horrid run for the company. For any long-term shareholders, the last month ends a year to forget by locking in a 59% share price decline.

Since its price has dipped substantially, Risecomm Group Holdings may be sending buy signals at present with its price-to-sales (or "P/S") ratio of 0.6x, considering almost half of all companies in the Semiconductor industry in Hong Kong have P/S ratios greater than 1.9x and even P/S higher than 7x aren't out of the ordinary. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/S.

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Check out our latest analysis for Risecomm Group Holdings

How Has Risecomm Group Holdings Performed Recently?

Recent times have been quite advantageous for Risecomm Group 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. If that doesn't eventuate, then existing shareholders have reason to be quite optimistic about the future direction of the share price.

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

Is There Any Revenue Growth Forecasted For Risecomm Group Holdings?

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

If we review the last year of revenue growth, the company posted a terrific increase of 38%. Despite this strong recent growth, it's still struggling to catch up as its three-year revenue frustratingly shrank by 49% overall. Therefore, it's fair to say the revenue growth recently has been undesirable for the company.

In contrast to the company, the rest of the industry is expected to grow by 23% over the next year, which really puts the company's recent medium-term revenue decline into perspective.

In light of this, it's understandable that Risecomm Group Holdings' P/S would sit below the majority of other companies. However, we think shrinking revenues are unlikely to lead to a stable P/S over the longer term, which could set up shareholders for future disappointment. Even just maintaining these prices could be difficult to achieve as recent revenue trends are already weighing down the shares.

What Does Risecomm Group Holdings' P/S Mean For Investors?

Risecomm Group Holdings' recently weak share price has pulled its P/S back below other Semiconductor companies. 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.

It's no surprise that Risecomm Group Holdings maintains its low P/S off the back of its sliding revenue over the medium-term. At this stage investors feel the potential for an improvement in revenue isn't great enough to justify a higher P/S ratio. If recent medium-term revenue trends continue, it's hard to see the share price moving strongly in either direction in the near future under these circumstances.

Having said that, be aware Risecomm Group Holdings is showing 4 warning signs in our investment analysis, and 3 of those are potentially serious.

If these risks are making you reconsider your opinion on Risecomm Group Holdings, explore our interactive list of high quality stocks to get an idea of what else is out there.

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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.