The Market Doesn't Like What It Sees From Sing Lee Software (Group) Limited's (HKG:8076) Revenues Yet

When you see that almost half of the companies in the Software industry in Hong Kong have price-to-sales ratios (or "P/S") above 1.2x, Sing Lee Software (Group) Limited (HKG:8076) looks to be giving off some buy signals with its 0.2x P/S ratio. 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 Sing Lee Software (Group)

What Does Sing Lee Software (Group)'s Recent Performance Look Like?

For instance, Sing Lee Software (Group)'s receding revenue in recent times would have to be some food for thought. One possibility is that the P/S is low because investors think the company won't do enough to avoid underperforming the broader industry in the near future. Those who are bullish on Sing Lee Software (Group) will be hoping that this isn't the case so that they can pick up the stock at a lower valuation.

Want the full picture on earnings, revenue and cash flow for the company? Then our free report on Sing Lee Software (Group) will help you shine a light on its historical performance.

How Is Sing Lee Software (Group)'s Revenue Growth Trending?

Sing Lee Software (Group)'s P/S ratio would be typical for a company that's only expected to deliver limited growth, and importantly, perform worse than the industry.

Retrospectively, the last year delivered a frustrating 18% decrease to the company's top line. This means it has also seen a slide in revenue over the longer-term as revenue is down 16% in total over the last three years. Therefore, it's fair to say the revenue growth recently has been undesirable for the company.

In contrast to the company, the rest of the industry is expected to grow by 22% over the next year, which really puts the company's recent medium-term revenue decline into perspective.

In light of this, it's understandable that Sing Lee Software (Group)'s P/S would sit below the majority of other companies. However, we think shrinking revenues are unlikely to lead to a stable P/S over the longer term, which could set up shareholders for future disappointment. Even just maintaining these prices could be difficult to achieve as recent revenue trends are already weighing down the shares.

The Bottom Line On Sing Lee Software (Group)'s P/S

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.

Our examination of Sing Lee Software (Group) confirms that the company's shrinking revenue over the past medium-term is a key factor in its low price-to-sales ratio, given the industry is projected to grow. Right now shareholders are accepting the low P/S as they concede future revenue probably won't provide any pleasant surprises either. If recent medium-term revenue trends continue, it's hard to see the share price moving strongly in either direction in the near future under these circumstances.

It's always necessary to consider the ever-present spectre of investment risk. We've identified 3 warning signs with Sing Lee Software (Group) (at least 2 which are concerning), and understanding these should be part of your investment process.

If you're unsure about the strength of Sing Lee Software (Group)'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.