MicroCloud Hologram Inc. (NASDAQ:HOLO) May Have Run Too Fast Too Soon With Recent 62% Price Plummet

Unfortunately for some shareholders, the MicroCloud Hologram Inc. (NASDAQ:HOLO) share price has dived 62% in the last thirty days, prolonging recent pain. For any long-term shareholders, the last month ends a year to forget by locking in a 99% share price decline.

In spite of the heavy fall in price, MicroCloud Hologram may still be sending very bearish signals at the moment with a price-to-sales (or "P/S") ratio of 7.7x, since almost half of all companies in the Software industry in the United States have P/S ratios under 4.2x and even P/S lower than 1.6x are not unusual. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly elevated P/S.

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View our latest analysis for MicroCloud Hologram

How Has MicroCloud Hologram Performed Recently?

MicroCloud Hologram certainly has been doing a great job lately as it's been growing its revenue at a really rapid pace. Perhaps the market is expecting future revenue performance to outperform the wider market, which has seemingly got people interested in the stock. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

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

Is There Enough Revenue Growth Forecasted For MicroCloud Hologram?

MicroCloud Hologram's P/S ratio would be typical for a company that's expected to deliver very strong growth, and importantly, perform much better than the industry.

If we review the last year of revenue growth, the company posted a terrific increase of 43%. Despite this strong recent growth, it's still struggling to catch up as its three-year revenue frustratingly shrank by 19% overall. Therefore, it's fair to say the revenue growth recently has been undesirable for the company.

Comparing that to the industry, which is predicted to deliver 14% growth in the next 12 months, the company's downward momentum based on recent medium-term revenue results is a sobering picture.

In light of this, it's alarming that MicroCloud Hologram's P/S sits above the majority of other companies. It seems most investors are ignoring the recent poor growth rate and are hoping for a turnaround in the company's business prospects. Only the boldest would assume these prices are sustainable as a continuation of recent revenue trends is likely to weigh heavily on the share price eventually.

The Key Takeaway

Even after such a strong price drop, MicroCloud Hologram's P/S still exceeds the industry median significantly. 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 MicroCloud Hologram currently trades on a much higher than expected P/S since its recent revenues have been in decline over the medium-term. Right now we aren't comfortable with the high P/S as this revenue performance is highly unlikely to support such positive sentiment for long. Unless the the circumstances surrounding the recent medium-term improve, it wouldn't be wrong to expect a a difficult period ahead for the company's shareholders.

There are also other vital risk factors to consider before investing and we've discovered 3 warning signs for MicroCloud Hologram that you should be aware of.

If you're unsure about the strength of MicroCloud Hologram's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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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.