Weimob Inc. (HKG:2013) Stock Rockets 32% As Investors Are Less Pessimistic Than Expected

Weimob Inc. (HKG:2013) shareholders would be excited to see that the share price has had a great month, posting a 32% gain and recovering from prior weakness. But the last month did very little to improve the 54% share price decline over the last year.

Following the firm bounce in price, given close to half the companies operating in Hong Kong's Software industry have price-to-sales ratios (or "P/S") below 1.2x, you may consider Weimob as a stock to potentially avoid with its 2.2x P/S ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the elevated P/S.

Check out our latest analysis for Weimob

How Has Weimob Performed Recently?

Weimob could be doing better as its revenue has been going backwards lately while most other companies have been seeing positive revenue growth. It might be that many expect the dour revenue performance to recover substantially, which has kept the P/S from collapsing. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

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

Do Revenue Forecasts Match The High P/S Ratio?

The only time you'd be truly comfortable seeing a P/S as high as Weimob's is when the company's growth is on track to outshine the industry.

Retrospectively, the last year delivered a frustrating 12% decrease to the company's top line. The last three years don't look nice either as the company has shrunk revenue by 4.3% in aggregate. Therefore, it's fair to say the revenue growth recently has been undesirable for the company.

Looking ahead now, revenue is anticipated to climb by 11% during the coming year according to the analysts following the company. That's shaping up to be materially lower than the 24% growth forecast for the broader industry.

With this information, we find it concerning that Weimob is trading at a P/S higher than the industry. Apparently many investors in the company are way more bullish than analysts indicate and aren't willing to let go of their stock at any price. Only the boldest would assume these prices are sustainable as this level of revenue growth is likely to weigh heavily on the share price eventually.

What We Can Learn From Weimob's P/S?

Weimob's P/S is on the rise since its shares have risen strongly. 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.

Despite analysts forecasting some poorer-than-industry revenue growth figures for Weimob, this doesn't appear to be impacting the P/S in the slightest. The weakness in the company's revenue estimate doesn't bode well for the elevated P/S, which could take a fall if the revenue sentiment doesn't improve. This places shareholders' investments at significant risk and potential investors in danger of paying an excessive premium.

It is also worth noting that we have found 1 warning sign for Weimob that you need to take into consideration.

If you're unsure about the strength of Weimob's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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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.