Ruihe Data Technology Holdings Limited's (HKG:3680) Popularity With Investors Under Threat As Stock Sinks 39%

The Ruihe Data Technology Holdings Limited (HKG:3680) share price has fared very poorly over the last month, falling by a substantial 39%. The recent drop completes a disastrous twelve months for shareholders, who are sitting on a 64% loss during that time.

Even after such a large drop in price, there still wouldn't be many who think Ruihe Data Technology Holdings' price-to-sales (or "P/S") ratio of 1x is worth a mention when the median P/S in Hong Kong's IT industry is similar at about 1.1x. Although, it's not wise to simply ignore the P/S without explanation as investors may be disregarding a distinct opportunity or a costly mistake.

AI is about to change healthcare. These 20 stocks are working on everything from early diagnostics to drug discovery. The best part - they are all under $10bn in marketcap - there is still time to get in early.

Check out our latest analysis for Ruihe Data Technology Holdings

How Has Ruihe Data Technology Holdings Performed Recently?

Revenue has risen at a steady rate over the last year for Ruihe Data Technology Holdings, which is generally not a bad outcome. Perhaps the expectation moving forward is that the revenue growth will track in line with the wider industry for the near term, which has kept the P/S subdued. Those who are bullish on Ruihe Data Technology Holdings will be hoping that this isn't the case, so that they can pick up the stock at a lower valuation.

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 Ruihe Data Technology Holdings' earnings, revenue and cash flow.

Do Revenue Forecasts Match The P/S Ratio?

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

Retrospectively, the last year delivered a decent 2.7% gain to the company's revenues. However, this wasn't enough as the latest three year period has seen an unpleasant 4.9% overall drop in revenue. So unfortunately, we have to acknowledge that the company has not done a great job of growing revenue over that time.

In contrast to the company, the rest of the industry is expected to grow by 8.5% over the next year, which really puts the company's recent medium-term revenue decline into perspective.

With this information, we find it concerning that Ruihe Data Technology Holdings is trading at a fairly similar P/S compared to the industry. Apparently many investors in the company are way less bearish than recent times would indicate and aren't willing to let go of their stock right now. There's a good chance existing shareholders are setting themselves up for future disappointment if the P/S falls to levels more in line with the recent negative growth rates.

The Bottom Line On Ruihe Data Technology Holdings' P/S

With its share price dropping off a cliff, the P/S for Ruihe Data Technology Holdings looks to be in line with the rest of the IT industry. 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.

Our look at Ruihe Data Technology Holdings revealed its shrinking revenues over the medium-term haven't impacted the P/S as much as we anticipated, given the industry is set to grow. Even though it matches the industry, we're uncomfortable with the current P/S ratio, as this dismal revenue performance is unlikely to support a more positive sentiment for long. If recent medium-term revenue trends continue, it will place shareholders' investments at risk and potential investors in danger of paying an unnecessary premium.

Before you take the next step, you should know about the 3 warning signs for Ruihe Data Technology Holdings (1 is potentially serious!) that we have uncovered.

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.