There's No Escaping Anacle Systems Limited's (HKG:8353) Muted Revenues Despite A 33% Share Price Rise

Despite an already strong run, Anacle Systems Limited (HKG:8353) shares have been powering on, with a gain of 33% in the last thirty days. Notwithstanding the latest gain, the annual share price return of 5.3% isn't as impressive.

Although its price has surged higher, it would still be understandable if you think Anacle Systems is a stock with good investment prospects with a price-to-sales ratios (or "P/S") of 1x, considering almost half the companies in Hong Kong's Software industry have P/S ratios above 1.7x. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's limited.

Check out our latest analysis for Anacle Systems

What Does Anacle Systems' P/S Mean For Shareholders?

Recent times have been quite advantageous for Anacle Systems as its revenue has been rising very briskly. One possibility is that the P/S ratio is low because investors think this strong revenue growth might actually underperform the broader industry in the near future. If that doesn't eventuate, then existing shareholders have reason to be quite optimistic about the future direction of the share price.

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

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

The only time you'd be truly comfortable seeing a P/S as low as Anacle Systems' is when the company's growth is on track to lag the industry.

Taking a look back first, we see that the company grew revenue by an impressive 36% last year. As a result, it also grew revenue by 29% in total over the last three years. Therefore, it's fair to say the revenue growth recently has been respectable for the company.

This is in contrast to the rest of the industry, which is expected to grow by 21% over the next year, materially higher than the company's recent medium-term annualised growth rates.

With this information, we can see why Anacle Systems is trading at a P/S lower than the industry. It seems most investors are expecting to see the recent limited growth rates continue into the future and are only willing to pay a reduced amount for the stock.

What We Can Learn From Anacle Systems' P/S?

Anacle Systems' stock price has surged recently, but its but its P/S still remains modest. Generally, our preference is to limit the use of the price-to-sales ratio to establishing what the market thinks about the overall health of a company.

In line with expectations, Anacle Systems maintains its low P/S on the weakness of its recent three-year growth being lower than the wider industry forecast. Right now shareholders are accepting the low P/S as they concede future revenue probably won't provide any pleasant surprises. Unless the recent medium-term conditions improve, they will continue to form a barrier for the share price around these levels.

There are also other vital risk factors to consider before investing and we've discovered 2 warning signs for Anacle Systems that you should be aware of.

If these risks are making you reconsider your opinion on Anacle Systems, explore our interactive list of high quality stocks to get an idea of what else is out there.

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.