Not Many Are Piling Into Serendip Holdings Co.,Ltd. (TSE:7318) Stock Yet As It Plummets 38%

Serendip Holdings Co.,Ltd. (TSE:7318) shares have had a horrible month, losing 38% after a relatively good period beforehand. Of course, over the longer-term many would still wish they owned shares as the stock's price has soared 160% in the last twelve months.

Even after such a large drop in price, it's still not a stretch to say that Serendip HoldingsLtd's price-to-sales (or "P/S") ratio of 0.5x right now seems quite "middle-of-the-road" compared to the Auto Components industry in Japan, 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 Serendip HoldingsLtd

What Does Serendip HoldingsLtd's Recent Performance Look Like?

Recent times have been quite advantageous for Serendip HoldingsLtd as its revenue has been rising very briskly. 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. 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 Serendip HoldingsLtd's earnings, revenue and cash flow.

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

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

Retrospectively, the last year delivered an exceptional 72% gain to the company's top line. Pleasingly, revenue has also lifted 149% in aggregate from three years ago, thanks to the last 12 months of growth. So we can start by confirming that the company has done a great job of growing revenue over that time.

Comparing that to the industry, which is only predicted to deliver 1.7% growth in the next 12 months, the company's momentum is stronger based on recent medium-term annualised revenue results.

In light of this, it's curious that Serendip HoldingsLtd's P/S sits in line with the majority of other companies. It may be that most investors are not convinced the company can maintain its recent growth rates.

The Bottom Line On Serendip HoldingsLtd's P/S

Following Serendip HoldingsLtd's 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.

We didn't quite envision Serendip HoldingsLtd's P/S sitting in line with the wider industry, considering the revenue growth over the last three-year is higher than the current industry outlook. When we see strong revenue with faster-than-industry growth, we can only assume potential risks are what might be placing pressure on the P/S ratio. 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.

And what about other risks? Every company has them, and we've spotted 3 warning signs for Serendip HoldingsLtd you should know about.

If these risks are making you reconsider your opinion on Serendip HoldingsLtd, 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.