CircuTech International Holdings Limited (HKG:8051) May Have Run Too Fast Too Soon With Recent 25% Price Plummet

CircuTech International Holdings Limited (HKG:8051) shares have had a horrible month, losing 25% after a relatively good period beforehand. Instead of being rewarded, shareholders who have already held through the last twelve months are now sitting on a 20% share price drop.

In spite of the heavy fall in price, it's still not a stretch to say that CircuTech International Holdings' price-to-sales (or "P/S") ratio of 0.2x right now seems quite "middle-of-the-road" compared to the Electronic industry in Hong Kong, where the median P/S ratio is around 0.4x. Although, it's not wise to simply ignore the P/S without explanation as investors may be disregarding a distinct opportunity or a costly mistake.

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See our latest analysis for CircuTech International Holdings

What Does CircuTech International Holdings' Recent Performance Look Like?

CircuTech International Holdings certainly has been doing a great job lately as it's been growing its revenue at a really rapid pace. The P/S is probably moderate because investors think this strong revenue growth might not be enough to outperform the broader industry in the near future. Those who are bullish on CircuTech International Holdings will be hoping that this isn't the case, so that they can pick up the stock at a lower valuation.

Although there are no analyst estimates available for CircuTech International Holdings, 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 P/S?

CircuTech International Holdings' P/S ratio would be typical for a company that's only expected to deliver moderate growth, and importantly, perform in line with the industry.

Retrospectively, the last year delivered an exceptional 131% gain to the company's top line. Although, its longer-term performance hasn't been as strong with three-year revenue growth being relatively non-existent overall. Therefore, it's fair to say that revenue growth has been inconsistent recently for the company.

This is in contrast to the rest of the industry, which is expected to grow by 17% over the next year, materially higher than the company's recent medium-term annualised growth rates.

With this in mind, we find it intriguing that CircuTech International Holdings' P/S is comparable to that of its industry peers. Apparently many investors in the company are less bearish than recent times would indicate and aren't willing to let go of their stock right now. Maintaining these prices will be difficult to achieve as a continuation of recent revenue trends is likely to weigh down the shares eventually.

The Bottom Line On CircuTech International Holdings' P/S

Following CircuTech International Holdings' share price tumble, its P/S is just clinging on to the industry median P/S. 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 examination of CircuTech International Holdings revealed its poor three-year revenue trends aren't resulting in a lower P/S as per our expectations, given they look worse than current industry outlook. When we see weak revenue with slower than industry growth, we suspect the share price is at risk of declining, bringing the P/S back in line with expectations. Unless there is a significant improvement in the company's medium-term performance, it will be difficult to prevent the P/S ratio from declining to a more reasonable level.

It is also worth noting that we have found 3 warning signs for CircuTech International Holdings (2 are a bit concerning!) that you need to take into consideration.

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

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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.