Benign Growth For 36Kr Holdings Inc. (NASDAQ:KRKR) Underpins Stock's 30% Plummet

To the annoyance of some shareholders, 36Kr Holdings Inc. (NASDAQ:KRKR) shares are down a considerable 30% in the last month, which continues a horrid run for the company. For any long-term shareholders, the last month ends a year to forget by locking in a 79% share price decline.

After such a large drop in price, 36Kr Holdings' price-to-sales (or "P/S") ratio of 0.2x might make it look like a buy right now compared to the Interactive Media and Services industry in the United States, where around half of the companies have P/S ratios above 1.3x and even P/S above 4x are quite common. 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 36Kr Holdings

How 36Kr Holdings Has Been Performing

For example, consider that 36Kr Holdings' financial performance has been poor lately as its revenue has been in decline. It might be that many expect the disappointing revenue performance to continue or accelerate, which has repressed the P/S. Those who are bullish on 36Kr Holdings will be hoping that this isn't the case so that they can pick up the stock at a lower valuation.

Although there are no analyst estimates available for 36Kr Holdings, take a look at this free data-rich visualisation to see how the company stacks up on earnings, revenue and cash flow.

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 36Kr Holdings' 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 8.6%. This means it has also seen a slide in revenue over the longer-term as revenue is down 16% in total over the last three years. Therefore, it's fair to say the revenue growth recently has been undesirable for the company.

In contrast to the company, the rest of the industry is expected to grow by 13% over the next year, which really puts the company's recent medium-term revenue decline into perspective.

In light of this, it's understandable that 36Kr Holdings' P/S would sit below the majority of other companies. However, we think shrinking revenues are unlikely to lead to a stable P/S over the longer term, which could set up shareholders for future disappointment. There's potential for the P/S to fall to even lower levels if the company doesn't improve its top-line growth.

What Does 36Kr Holdings' P/S Mean For Investors?

36Kr Holdings' recently weak share price has pulled its P/S back below other Interactive Media and Services companies. 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.

Our examination of 36Kr Holdings confirms that the company's shrinking revenue over the past medium-term is a key factor in its low price-to-sales ratio, given the industry is projected to grow. Right now shareholders are accepting the low P/S as they concede future revenue probably won't provide any pleasant surprises either. If recent medium-term revenue trends continue, it's hard to see the share price moving strongly in either direction in the near future under these circumstances.

Before you settle on your opinion, we've discovered 2 warning signs for 36Kr Holdings that you should be aware of.

If these risks are making you reconsider your opinion on 36Kr 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.