Market Participants Recognise HTC Corporation's (TWSE:2498) Revenues

When you see that almost half of the companies in the Tech industry in Taiwan have price-to-sales ratios (or "P/S") below 1.8x, HTC Corporation (TWSE:2498) looks to be giving off strong sell signals with its 9.5x 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 so lofty.

View our latest analysis for HTC

What Does HTC's Recent Performance Look Like?

The recently shrinking revenue for HTC has been in line with the industry. Perhaps the market is expecting the company to reverse its fortunes and beat out a struggling industry in the future, elevating the P/S. However, if this isn't the case, investors might get caught out paying too much for the stock.

If you'd like to see what analysts are forecasting going forward, you should check out our free report on HTC.

Is There Enough Revenue Growth Forecasted For HTC?

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

Retrospectively, the last year delivered a frustrating 5.7% decrease to the company's top line. This means it has also seen a slide in revenue over the longer-term as revenue is down 29% in total over the last three years. Accordingly, shareholders would have felt downbeat about the medium-term rates of revenue growth.

Shifting to the future, estimates from the two analysts covering the company suggest revenue should grow by 51% over the next year. That's shaping up to be materially higher than the 29% growth forecast for the broader industry.

With this in mind, it's not hard to understand why HTC's P/S is high relative to its industry peers. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.

The Final Word

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've established that HTC maintains its high P/S on the strength of its forecasted revenue growth being higher than the the rest of the Tech industry, as expected. It appears that shareholders are confident in the company's future revenues, which is propping up the P/S. It's hard to see the share price falling strongly in the near future under these circumstances.

The company's balance sheet is another key area for risk analysis. Take a look at our free balance sheet analysis for HTC with six simple checks on some of these key factors.

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.

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