Further Upside For HORNG SHIUE HOLDING Co., Ltd. (TWSE:2243) Shares Could Introduce Price Risks After 32% Bounce

HORNG SHIUE HOLDING Co., Ltd. (TWSE:2243) shareholders would be excited to see that the share price has had a great month, posting a 32% gain and recovering from prior weakness. The bad news is that even after the stocks recovery in the last 30 days, shareholders are still underwater by about 6.0% over the last year.

Even after such a large jump in price, it would still be understandable if you think HORNG SHIUE HOLDING is a stock with good investment prospects with a price-to-sales ratios (or "P/S") of 0.8x, considering almost half the companies in Taiwan's Auto Components industry have P/S ratios above 1.8x. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/S.

See our latest analysis for HORNG SHIUE HOLDING

What Does HORNG SHIUE HOLDING's P/S Mean For Shareholders?

As an illustration, revenue has deteriorated at HORNG SHIUE HOLDING over the last year, which is not ideal at all. One possibility is that the P/S is low because investors think the company won't do enough to avoid underperforming the broader industry in the near future. However, if this doesn't eventuate then existing shareholders may be feeling optimistic about the future direction of the share price.

Want the full picture on earnings, revenue and cash flow for the company? Then our free report on HORNG SHIUE HOLDING will help you shine a light on its historical performance.

Do Revenue Forecasts Match The Low P/S Ratio?

There's an inherent assumption that a company should underperform the industry for P/S ratios like HORNG SHIUE HOLDING's to be considered reasonable.

In reviewing the last year of financials, we were disheartened to see the company's revenues fell to the tune of 5.8%. Even so, admirably revenue has lifted 73% in aggregate from three years ago, notwithstanding the last 12 months. 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.

This is in contrast to the rest of the industry, which is expected to grow by 8.9% over the next year, materially lower than the company's recent medium-term annualised growth rates.

In light of this, it's peculiar that HORNG SHIUE HOLDING's P/S sits below the majority of other companies. It looks like most investors are not convinced the company can maintain its recent growth rates.

The Bottom Line On HORNG SHIUE HOLDING's P/S

The latest share price surge wasn't enough to lift HORNG SHIUE HOLDING's P/S close to the industry median. 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.

We're very surprised to see HORNG SHIUE HOLDING currently trading on a much lower than expected P/S since its recent three-year growth is higher than the wider industry forecast. When we see robust revenue growth that outpaces the industry, we presume that there are notable underlying risks to the company's future performance, which is exerting downward pressure on the P/S ratio. At least price risks look to be very low if recent medium-term revenue trends continue, but investors seem to think future revenue could see a lot of volatility.

There are also other vital risk factors to consider before investing and we've discovered 2 warning signs for HORNG SHIUE HOLDING that you should be aware of.

If these risks are making you reconsider your opinion on HORNG SHIUE HOLDING, 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.