Mercuries & Associates Holding, Ltd. (TWSE:2905) Shares Fly 28% But Investors Aren't Buying For Growth

Mercuries & Associates Holding, Ltd. (TWSE:2905) shareholders have had their patience rewarded with a 28% share price jump in the last month. Looking further back, the 11% rise over the last twelve months isn't too bad notwithstanding the strength over the last 30 days.

Although its price has surged higher, given about half the companies operating in Taiwan's Insurance industry have price-to-sales ratios (or "P/S") above 1x, you may still consider Mercuries & Associates Holding as an attractive investment with its 0.1x P/S ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/S.

View our latest analysis for Mercuries & Associates Holding

What Does Mercuries & Associates Holding's P/S Mean For Shareholders?

With revenue growth that's exceedingly strong of late, Mercuries & Associates Holding has been doing very well. One possibility is that the P/S ratio is low because investors think this strong revenue growth might actually underperform the broader industry in the near future. If that doesn't eventuate, then existing shareholders have reason to be quite 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 Mercuries & Associates Holding will help you shine a light on its historical performance.

How Is Mercuries & Associates Holding's Revenue Growth Trending?

The only time you'd be truly comfortable seeing a P/S as low as Mercuries & Associates Holding'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 terrific increase of 32%. However, this wasn't enough as the latest three year period has seen the company endure a nasty 30% drop in revenue in aggregate. Therefore, it's fair to say the revenue growth recently has been undesirable for the company.

Weighing that medium-term revenue trajectory against the broader industry's one-year forecast for expansion of 55% shows it's an unpleasant look.

In light of this, it's understandable that Mercuries & Associates Holding's P/S would sit below the majority of other companies. Nonetheless, there's no guarantee the P/S has reached a floor yet with revenue going in reverse. Even just maintaining these prices could be difficult to achieve as recent revenue trends are already weighing down the shares.

What We Can Learn From Mercuries & Associates Holding's P/S?

Despite Mercuries & Associates Holding's share price climbing recently, its P/S still lags most other companies. 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.

It's no surprise that Mercuries & Associates Holding maintains its low P/S off the back of its sliding revenue over the medium-term. Right now shareholders are accepting the low P/S as they concede future revenue probably won't provide any pleasant surprises either. Given the current circumstances, it seems unlikely that the share price will experience any significant movement in either direction in the near future if recent medium-term revenue trends persist.

And what about other risks? Every company has them, and we've spotted 3 warning signs for Mercuries & Associates Holding (of which 1 is a bit concerning!) you should know about.

If these risks are making you reconsider your opinion on Mercuries & Associates 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.