Global Link Communications Holdings Limited (HKG:8060) Shares Fly 33% But Investors Aren't Buying For Growth

Despite an already strong run, Global Link Communications Holdings Limited (HKG:8060) shares have been powering on, with a gain of 33% in the last thirty days. Looking back a bit further, it's encouraging to see the stock is up 93% in the last year.

In spite of the firm bounce in price, it would still be understandable if you think Global Link Communications Holdings is a stock with good investment prospects with a price-to-sales ratios (or "P/S") of 0.3x, considering almost half the companies in Hong Kong's Software industry have P/S ratios above 1.3x. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/S.

View our latest analysis for Global Link Communications Holdings

How Global Link Communications Holdings Has Been Performing

For example, consider that Global Link Communications Holdings' financial performance has been poor lately as its revenue has been in decline. Perhaps the market believes the recent revenue performance isn't good enough to keep up the industry, causing the P/S ratio to suffer. Those who are bullish on Global Link Communications Holdings will be hoping that this isn't the case so that they can pick up the stock at a lower valuation.

Although there are no analyst estimates available for Global Link Communications Holdings, take a look at this free data-rich visualisation to see how the company stacks up on earnings, revenue and cash flow.

How Is Global Link Communications Holdings' Revenue Growth Trending?

In order to justify its P/S ratio, Global Link Communications Holdings would need to produce sluggish growth that's trailing the industry.

Retrospectively, the last year delivered a frustrating 4.1% decrease to the company's top line. However, a few very strong years before that means that it was still able to grow revenue by an impressive 37% in total over the last three years. Although it's been a bumpy ride, it's still fair to say the revenue growth recently has been more than adequate for the company.

Comparing that to the industry, which is predicted to deliver 24% growth in the next 12 months, the company's momentum is weaker, based on recent medium-term annualised revenue results.

In light of this, it's understandable that Global Link Communications Holdings' P/S sits below the majority of other companies. Apparently many shareholders weren't comfortable holding on to something they believe will continue to trail the wider industry.

The Key Takeaway

Despite Global Link Communications Holdings' share price climbing recently, its P/S still lags most other companies. While the price-to-sales ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of revenue expectations.

As we suspected, our examination of Global Link Communications Holdings revealed its three-year revenue trends are contributing to its low P/S, given they look worse than current industry expectations. Right now shareholders are accepting the low P/S as they concede future revenue probably won't provide any pleasant surprises. If recent medium-term revenue trends continue, it's hard to see the share price experience a reversal of fortunes anytime soon.

You always need to take note of risks, for example - Global Link Communications Holdings has 2 warning signs we think you should be aware of.

If strong companies turning a profit tickle your fancy, then you'll want to check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).

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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.