Improved Revenues Required Before Freetech Road Recycling Technology (Holdings) Limited (HKG:6888) Shares Find Their Feet

When you see that almost half of the companies in the Infrastructure industry in Hong Kong have price-to-sales ratios (or "P/S") above 1.5x, Freetech Road Recycling Technology (Holdings) Limited (HKG:6888) looks to be giving off some buy signals with its 0.3x 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 limited.

Check out our latest analysis for Freetech Road Recycling Technology (Holdings)

What Does Freetech Road Recycling Technology (Holdings)'s P/S Mean For Shareholders?

Revenue has risen firmly for Freetech Road Recycling Technology (Holdings) recently, which is pleasing to see. One possibility is that the P/S is low because investors think this respectable revenue growth might actually underperform the broader industry in the near future. Those who are bullish on Freetech Road Recycling Technology (Holdings) will be hoping that this isn't the case, so that they can pick up the stock at a lower valuation.

Want the full picture on earnings, revenue and cash flow for the company? Then our free report on Freetech Road Recycling Technology (Holdings) will help you shine a light on its historical performance.

Is There Any Revenue Growth Forecasted For Freetech Road Recycling Technology (Holdings)?

The only time you'd be truly comfortable seeing a P/S as low as Freetech Road Recycling Technology (Holdings)'s is when the company's growth is on track to lag the industry.

If we review the last year of revenue growth, the company posted a worthy increase of 14%. However, due to its less than impressive performance prior to this period, revenue growth is practically non-existent over the last three years overall. Accordingly, shareholders probably wouldn't have been overly satisfied with the unstable medium-term growth rates.

This is in contrast to the rest of the industry, which is expected to grow by 7.1% over the next year, materially higher than the company's recent medium-term annualised growth rates.

In light of this, it's understandable that Freetech Road Recycling Technology (Holdings)'s P/S sits below the majority of other companies. Apparently many shareholders weren't comfortable holding on to something they believe will continue to trail the wider industry.

The Key Takeaway

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.

In line with expectations, Freetech Road Recycling Technology (Holdings) maintains its low P/S on the weakness of its recent three-year growth being lower than the wider industry forecast. At this stage investors feel the potential for an improvement in revenue isn't great enough to justify a higher P/S ratio. If recent medium-term revenue trends continue, it's hard to see the share price experience a reversal of fortunes anytime soon.

It is also worth noting that we have found 2 warning signs for Freetech Road Recycling Technology (Holdings) that you need to take into consideration.

If these risks are making you reconsider your opinion on Freetech Road Recycling Technology (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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com