It's Down 27% But MOG Digitech Holdings Limited (HKG:1942) Could Be Riskier Than It Looks

Unfortunately for some shareholders, the MOG Digitech Holdings Limited (HKG:1942) share price has dived 27% in the last thirty days, prolonging recent pain. For any long-term shareholders, the last month ends a year to forget by locking in a 99% share price decline.

Although its price has dipped substantially, it's still not a stretch to say that MOG Digitech Holdings' price-to-sales (or "P/S") ratio of 0.4x right now seems quite "middle-of-the-road" compared to the Electronic industry in Hong Kong, seeing as it matches the P/S ratio of the wider industry. While this might not raise any eyebrows, if the P/S ratio is not justified investors could be missing out on a potential opportunity or ignoring looming disappointment.

Check out our latest analysis for MOG Digitech Holdings

How MOG Digitech Holdings Has Been Performing

With revenue growth that's exceedingly strong of late, MOG Digitech Holdings has been doing very well. Perhaps the market is expecting future revenue performance to taper off, which has kept the P/S from rising. If you like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's not quite in favour.

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 MOG Digitech Holdings' earnings, revenue and cash flow.

Is There Some Revenue Growth Forecasted For MOG Digitech Holdings?

In order to justify its P/S ratio, MOG Digitech Holdings would need to produce growth that's similar to the industry.

If we review the last year of revenue growth, the company posted a terrific increase of 94%. The latest three year period has also seen an incredible overall rise in revenue, aided by its incredible short-term performance. Accordingly, shareholders would have been over the moon with those medium-term rates of revenue growth.

Comparing that recent medium-term revenue trajectory with the industry's one-year growth forecast of 23% shows it's noticeably more attractive.

With this information, we find it interesting that MOG Digitech Holdings is trading at a fairly similar P/S compared to the industry. It may be that most investors are not convinced the company can maintain its recent growth rates.

The Bottom Line On MOG Digitech Holdings' P/S

MOG Digitech Holdings' plummeting stock price has brought its P/S back to a similar region as the rest of the industry. 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.

We've established that MOG Digitech Holdings currently trades on a lower than expected P/S since its recent three-year growth is higher than the wider industry forecast. It'd be fair to assume that potential risks the company faces could be the contributing factor to the lower than expected P/S. It appears some are indeed anticipating revenue instability, because the persistence of these recent medium-term conditions would normally provide a boost to the share price.

We don't want to rain on the parade too much, but we did also find 3 warning signs for MOG Digitech Holdings (1 is significant!) that you need to be mindful of.

Of course, profitable companies with a history of great earnings growth are generally safer bets. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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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.