BoardWare Intelligence Technology Limited's (HKG:1204) 34% Price Boost Is Out Of Tune With Revenues

BoardWare Intelligence Technology Limited (HKG:1204) shareholders have had their patience rewarded with a 34% share price jump in the last month. Unfortunately, the gains of the last month did little to right the losses of the last year with the stock still down 47% over that time.

In spite of the firm bounce in price, it's still not a stretch to say that BoardWare Intelligence Technology's price-to-sales (or "P/S") ratio of 1.4x right now seems quite "middle-of-the-road" compared to the IT industry in Hong Kong, where the median P/S ratio is around 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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View our latest analysis for BoardWare Intelligence Technology

How Has BoardWare Intelligence Technology Performed Recently?

As an illustration, revenue has deteriorated at BoardWare Intelligence Technology over the last year, which is not ideal at all. One possibility is that the P/S is moderate because investors think the company might still do enough to be in line with the broader industry in the near future. If not, then existing shareholders may be a little nervous about the viability of the share price.

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

What Are Revenue Growth Metrics Telling Us About The P/S?

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

Retrospectively, the last year delivered a frustrating 9.7% decrease to the company's top line. This has soured the latest three-year period, which nevertheless managed to deliver a decent 21% overall rise in revenue. Although it's been a bumpy ride, it's still fair to say the revenue growth recently has been mostly respectable for the company.

Comparing that to the industry, which is predicted to deliver 9.3% growth in the next 12 months, the company's momentum is weaker, based on recent medium-term annualised revenue results.

With this information, we find it interesting that BoardWare Intelligence Technology is trading at a fairly similar P/S compared to the industry. Apparently many investors in the company are less bearish than recent times would indicate and aren't willing to let go of their stock right now. Maintaining these prices will be difficult to achieve as a continuation of recent revenue trends is likely to weigh down the shares eventually.

What Does BoardWare Intelligence Technology's P/S Mean For Investors?

BoardWare Intelligence Technology's stock has a lot of momentum behind it lately, which has brought its P/S level with the rest of the industry. 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 BoardWare Intelligence Technology's average P/S is a bit surprising since its recent three-year growth is lower than the wider industry forecast. Right now we are uncomfortable with the P/S as this revenue performance isn't likely to support a more positive sentiment for long. Unless the recent medium-term conditions improve, it's hard to accept the current share price as fair value.

You should always think about risks. Case in point, we've spotted 3 warning signs for BoardWare Intelligence Technology you should be aware of, and 1 of them is a bit concerning.

Of course, profitable companies with a history of great earnings growth are generally safer bets. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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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.