Productive Technologies Company Limited (HKG:650) Shares Slammed 26% But Getting In Cheap Might Be Difficult Regardless

Productive Technologies Company Limited (HKG:650) shares have had a horrible month, losing 26% after a relatively good period beforehand. Indeed, the recent drop has reduced its annual gain to a relatively sedate 7.4% over the last twelve months.

In spite of the heavy fall in price, given around half the companies in Hong Kong's Semiconductor industry have price-to-sales ratios (or "P/S") below 1.9x, you may still consider Productive Technologies as a stock to avoid entirely with its 5.8x P/S ratio. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's so lofty.

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Check out our latest analysis for Productive Technologies

What Does Productive Technologies' Recent Performance Look Like?

For instance, Productive Technologies' receding revenue in recent times would have to be some food for thought. Perhaps the market believes the company can do enough to outperform the rest of the industry in the near future, which is keeping the P/S ratio high. However, if this isn't the case, investors might get caught out paying too much for the stock.

We don't have analyst forecasts, but you can see how recent trends are setting up the company for the future by checking out our free report on Productive Technologies' earnings, revenue and cash flow.

Do Revenue Forecasts Match The High P/S Ratio?

In order to justify its P/S ratio, Productive Technologies would need to produce outstanding growth that's well in excess of the industry.

Retrospectively, the last year delivered a frustrating 49% decrease to the company's top line. Even so, admirably revenue has lifted 102% in aggregate from three years ago, notwithstanding the last 12 months. So we can start by confirming that the company has generally done a very good job of growing revenue over that time, even though it had some hiccups along the way.

Comparing that recent medium-term revenue trajectory with the industry's one-year growth forecast of 21% shows it's noticeably more attractive.

With this information, we can see why Productive Technologies is trading at such a high P/S compared to the industry. Presumably shareholders aren't keen to offload something they believe will continue to outmanoeuvre the wider industry.

The Key Takeaway

Even after such a strong price drop, Productive Technologies' P/S still exceeds the industry median significantly. We'd say the price-to-sales ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

It's no surprise that Productive Technologies can support its high P/S given the strong revenue growth its experienced over the last three-year is superior to the current industry outlook. In the eyes of shareholders, the probability of a continued growth trajectory is great enough to prevent the P/S from pulling back. Barring any significant changes to the company's ability to make money, the share price should continue to be propped up.

The company's balance sheet is another key area for risk analysis. Take a look at our free balance sheet analysis for Productive Technologies with six simple checks on some of these key factors.

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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.