MOG Digitech Holdings Limited's (HKG:1942) P/S Is On The Mark

When close to half the companies in the Electronic industry in Hong Kong have price-to-sales ratios (or "P/S") below 0.4x, you may consider MOG Digitech Holdings Limited (HKG:1942) as a stock to potentially avoid with its 1.2x 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 as high as it is.

View our latest analysis for MOG Digitech Holdings

What Does MOG Digitech Holdings' P/S Mean For Shareholders?

Recent times have been pleasing for MOG Digitech Holdings as its revenue has risen in spite of the industry's average revenue going into reverse. Perhaps the market is expecting the company's future revenue growth to buck the trend of the industry, contributing to a higher P/S. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

Want the full picture on analyst estimates for the company? Then our free report on MOG Digitech Holdings will help you uncover what's on the horizon.

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

MOG Digitech Holdings' P/S ratio would be typical for a company that's expected to deliver solid growth, and importantly, perform better than the industry.

Taking a look back first, we see that the company grew revenue by an impressive 199% last year. Pleasingly, revenue has also lifted 193% in aggregate from three years ago, thanks to the last 12 months of growth. Accordingly, shareholders would have definitely welcomed those medium-term rates of revenue growth.

Looking ahead now, revenue is anticipated to climb by 117% each year during the coming three years according to the one analyst following the company. With the industry only predicted to deliver 12% per annum, the company is positioned for a stronger revenue result.

With this in mind, it's not hard to understand why MOG Digitech Holdings' P/S is high relative to its industry peers. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.

What Does MOG Digitech Holdings' P/S Mean For Investors?

We'd say the price-to-sales ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

As we suspected, our examination of MOG Digitech Holdings' analyst forecasts revealed that its superior revenue outlook is contributing to its high P/S. At this stage investors feel the potential for a deterioration in revenues is quite remote, justifying the elevated P/S ratio. Unless these conditions change, they will continue to provide strong support to the share price.

You should always think about risks. Case in point, we've spotted 3 warning signs for MOG Digitech Holdings you should be aware of, and 2 of them are significant.

If strong companies turning a profit tickle your fancy, then you'll want to check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).

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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.