Improved Revenues Required Before Kinetix Systems Holdings Limited (HKG:8606) Stock's 30% Jump Looks Justified

Kinetix Systems Holdings Limited (HKG:8606) shares have had a really impressive month, gaining 30% after a shaky period beforehand. Not all shareholders will be feeling jubilant, since the share price is still down a very disappointing 48% in the last twelve months.

Even after such a large jump in price, when close to half the companies operating in Hong Kong's IT industry have price-to-sales ratios (or "P/S") above 1.3x, you may still consider Kinetix Systems Holdings as an enticing stock to check out with its 0.4x 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.

Check out our latest analysis for Kinetix Systems Holdings

How Kinetix Systems Holdings Has Been Performing

Revenue has risen at a steady rate over the last year for Kinetix Systems Holdings, which is generally not a bad outcome. Perhaps the market believes the recent revenue performance might fall short of industry figures in the near future, leading to a reduced P/S. Those who are bullish on Kinetix Systems Holdings 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 Kinetix Systems Holdings will help you shine a light on its historical performance.

Is There Any Revenue Growth Forecasted For Kinetix Systems Holdings?

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

If we review the last year of revenue growth, the company posted a worthy increase of 4.9%. The solid recent performance means it was also able to grow revenue by 9.5% in total over the last three years. So we can start by confirming that the company has actually done a good job of growing revenue over that time.

Comparing that to the industry, which is predicted to deliver 14% growth in the next 12 months, the company's momentum is weaker, based on recent medium-term annualised revenue results.

With this in consideration, it's easy to understand why Kinetix Systems Holdings' P/S falls short of the mark set by its industry peers. 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 Kinetix Systems Holdings' P/S?

Despite Kinetix Systems Holdings' share price climbing recently, its P/S still lags most other companies. 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.

In line with expectations, Kinetix Systems Holdings 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.

Having said that, be aware Kinetix Systems Holdings is showing 3 warning signs in our investment analysis, and 2 of those are potentially serious.

If you're unsure about the strength of Kinetix Systems Holdings' 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.

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