Take Care Before Jumping Onto GCL Technology Holdings Limited (HKG:3800) Even Though It's 40% Cheaper

The GCL Technology Holdings Limited (HKG:3800) share price has fared very poorly over the last month, falling by a substantial 40%. Instead of being rewarded, shareholders who have already held through the last twelve months are now sitting on a 40% share price drop.

In spite of the heavy fall in price, you could still be forgiven for feeling indifferent about GCL Technology Holdings' P/S ratio of 1.3x, since the median price-to-sales (or "P/S") ratio for the Semiconductor industry in Hong Kong is also close to 1.5x. 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.

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Check out our latest analysis for GCL Technology Holdings

How Has GCL Technology Holdings Performed Recently?

While the industry has experienced revenue growth lately, GCL Technology Holdings' revenue has gone into reverse gear, which is not great. It might be that many expect the dour revenue performance to strengthen positively, which has kept the P/S from falling. If not, then existing shareholders may be a little nervous about the viability of the share price.

Keen to find out how analysts think GCL Technology Holdings' future stacks up against the industry? In that case, our free report is a great place to start .

How Is GCL Technology Holdings' Revenue Growth Trending?

In order to justify its P/S ratio, GCL Technology Holdings would need to produce growth that's similar to the industry.

Retrospectively, the last year delivered a frustrating 55% decrease to the company's top line. As a result, revenue from three years ago have also fallen 10% overall. So unfortunately, we have to acknowledge that the company has not done a great job of growing revenue over that time.

Looking ahead now, revenue is anticipated to climb by 22% per year during the coming three years according to the eleven analysts following the company. That's shaping up to be materially higher than the 15% each year growth forecast for the broader industry.

In light of this, it's curious that GCL Technology Holdings' P/S sits in line with the majority of other companies. It may be that most investors aren't convinced the company can achieve future growth expectations.

What Does GCL Technology Holdings' P/S Mean For Investors?

GCL Technology Holdings' plummeting stock price has brought its P/S back to a similar region as 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.

Looking at GCL Technology Holdings' analyst forecasts revealed that its superior revenue outlook isn't giving the boost to its P/S that we would've expected. When we see a strong revenue outlook, with growth outpacing the industry, we can only assume potential uncertainty around these figures are what might be placing slight pressure on the P/S ratio. At least the risk of a price drop looks to be subdued, but investors seem to think future revenue could see some volatility.

Many other vital risk factors can be found on the company's balance sheet. Take a look at our free balance sheet analysis for GCL Technology Holdings with six simple checks on some of these key factors.

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.