Great Harvest Maeta Holdings Limited's (HKG:3683) P/S Still Appears To Be Reasonable

Great Harvest Maeta Holdings Limited's (HKG:3683) price-to-sales (or "P/S") ratio of 1.7x may not look like an appealing investment opportunity when you consider close to half the companies in the Shipping industry in Hong Kong have P/S ratios below 0.8x. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the elevated P/S.

Check out our latest analysis for Great Harvest Maeta Holdings

What Does Great Harvest Maeta Holdings' Recent Performance Look Like?

For example, consider that Great Harvest Maeta Holdings' financial performance has been poor lately as its revenue has been in decline. One possibility is that the P/S is high because investors think the company will still do enough to outperform the broader industry in the near future. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

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 Great Harvest Maeta Holdings' earnings, revenue and cash flow.

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

There's an inherent assumption that a company should outperform the industry for P/S ratios like Great Harvest Maeta Holdings' to be considered reasonable.

Retrospectively, the last year delivered a frustrating 36% decrease to the company's top line. Still, the latest three year period has seen an excellent 31% overall rise in revenue, in spite of its unsatisfying short-term performance. Although it's been a bumpy ride, it's still fair to say the revenue growth recently has been more than adequate for the company.

Comparing that to the industry, which is predicted to shrink 17% in the next 12 months, the company's positive momentum based on recent medium-term revenue results is a bright spot for the moment.

With this information, we can see why Great Harvest Maeta Holdings is trading at a high P/S compared to the industry. Presumably shareholders aren't keen to offload something they believe will continue to outmanoeuvre the industry. However, its current revenue trajectory will be very difficult to maintain against the headwinds other companies are facing at the moment.

What We Can Learn From Great Harvest Maeta Holdings' P/S?

It's argued the price-to-sales ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

As detailed previously, the strength of Great Harvest Maeta Holdings' recent revenue trends over the medium-term relative to a declining industry is part of the reason why it trades at a higher P/S than its industry counterparts. Right now shareholders are comfortable with the P/S as they are quite confident revenues aren't under threat. However, it'd be fair to raise concerns over whether this level of revenue performance will continue given the harsh conditions facing the industry. Otherwise, it's hard to see the share price falling strongly in the near future if its revenue performance persists.

Having said that, be aware Great Harvest Maeta Holdings is showing 2 warning signs in our investment analysis, and 1 of those is concerning.

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.