Byte Metaverse Holdings Limited (HKG:8645) Stock Rockets 26% As Investors Are Less Pessimistic Than Expected

Byte Metaverse Holdings Limited (HKG:8645) shares have had a really impressive month, gaining 26% after a shaky period beforehand. But the gains over the last month weren't enough to make shareholders whole, as the share price is still down 6.0% in the last twelve months.

After such a large jump in price, when almost half of the companies in Hong Kong's IT industry have price-to-sales ratios (or "P/S") below 1.2x, you may consider Byte Metaverse Holdings as a stock not worth researching with its 4x P/S ratio. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's so lofty.

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Check out our latest analysis for Byte Metaverse Holdings

What Does Byte Metaverse Holdings' P/S Mean For Shareholders?

Revenue has risen at a steady rate over the last year for Byte Metaverse Holdings, which is generally not a bad outcome. Perhaps the market believes the recent revenue performance is strong enough to outperform the industry, which has inflated the P/S ratio. However, if this isn't the case, investors might get caught out paying too much for the stock.

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 Byte Metaverse Holdings' earnings, revenue and cash flow.

Do Revenue Forecasts Match The High P/S Ratio?

In order to justify its P/S ratio, Byte Metaverse Holdings would need to produce outstanding growth that's well in excess of the industry.

Retrospectively, the last year delivered a decent 4.1% gain to the company's revenues. The latest three year period has also seen an excellent 32% overall rise in revenue, aided somewhat by its short-term performance. So we can start by confirming that the company has done a great job of growing revenues over that time.

Weighing that recent medium-term revenue trajectory against the broader industry's one-year forecast for expansion of 8.4% shows it's about the same on an annualised basis.

With this in mind, we find it intriguing that Byte Metaverse Holdings' P/S exceeds that of its industry peers. It seems most investors are ignoring the fairly average recent growth rates and are willing to pay up for exposure to the stock. Although, additional gains will be difficult to achieve as a continuation of recent revenue trends would weigh down the share price eventually.

What Does Byte Metaverse Holdings' P/S Mean For Investors?

Shares in Byte Metaverse Holdings have seen a strong upwards swing lately, which has really helped boost its P/S figure. Typically, we'd caution against reading too much into price-to-sales ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

Our look into Byte Metaverse Holdings has shown that it currently trades on a higher than expected P/S since its recent three-year growth is only in line with the wider industry forecast. When we see average revenue with industry-like growth combined with a high P/S, we suspect the share price is at risk of declining, bringing the P/S back in line with the industry too. If recent medium-term revenue trends continue, it will place shareholders' investments at risk and potential investors in danger of paying an unnecessary premium.

It is also worth noting that we have found 2 warning signs for Byte Metaverse Holdings (1 is a bit concerning!) that you need to take into consideration.

It's important to make sure you look for a great company, not just the first idea you come across. So if growing profitability aligns with your idea of a great company, take a peek at this free list of interesting companies with strong recent earnings growth (and a low P/E).

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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.