Kinetix Systems Holdings Limited (HKG:8606) Stocks Pounded By 28% But Not Lagging Industry On Growth Or Pricing

The Kinetix Systems Holdings Limited (HKG:8606) share price has softened a substantial 28% over the previous 30 days, handing back much of the gains the stock has made lately. Looking at the bigger picture, even after this poor month the stock is up 83% in the last year.

In spite of the heavy fall in price, it's still not a stretch to say that Kinetix Systems Holdings' price-to-sales (or "P/S") ratio of 0.6x right now seems quite "middle-of-the-road" compared to the IT industry in Hong Kong, where the median P/S ratio is around 1.1x. Although, it's not wise to simply ignore the P/S without explanation as investors may be disregarding a distinct opportunity or a costly mistake.

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Check out our latest analysis for Kinetix Systems Holdings

What Does Kinetix Systems Holdings' P/S Mean For Shareholders?

Kinetix Systems Holdings has been doing a good job lately as it's been growing revenue at a solid pace. It might be that many expect the respectable revenue performance to wane, which has kept the P/S from rising. Those who are bullish on Kinetix Systems Holdings will be hoping that this isn't the case, so that they can pick up the stock at a lower valuation.

Do Revenue Forecasts Match The P/S Ratio?

Kinetix Systems Holdings' P/S ratio would be typical for a company that's only expected to deliver moderate growth, and importantly, perform in line with the industry.

Retrospectively, the last year delivered a decent 8.5% gain to the company's revenues. Pleasingly, revenue has also lifted 32% in aggregate from three years ago, partly thanks to the last 12 months of growth. Accordingly, shareholders would have definitely welcomed those medium-term rates of revenue growth.

Weighing that recent medium-term revenue trajectory against the broader industry's one-year forecast for expansion of 9.6% shows it's about the same on an annualised basis.

With this information, we can see why Kinetix Systems Holdings is trading at a fairly similar P/S to the industry. Apparently shareholders are comfortable to simply hold on assuming the company will continue keeping a low profile.

The Bottom Line On Kinetix Systems Holdings' P/S

Following Kinetix Systems Holdings' share price tumble, its P/S is just clinging on to the industry median P/S. Generally, our preference is to limit the use of the price-to-sales ratio to establishing what the market thinks about the overall health of a company.

As we've seen, Kinetix Systems Holdings' three-year revenue trends seem to be contributing to its P/S, given they look similar to current industry expectations. With previous revenue trends that keep up with the current industry outlook, it's hard to justify the company's P/S ratio deviating much from it's current point. 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.

You should always think about risks. Case in point, we've spotted 3 warning signs for Kinetix Systems Holdings you should be aware of, and 2 of them make us uncomfortable.

If these risks are making you reconsider your opinion on Kinetix Systems 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.