Regal Partners Holdings Limited's (HKG:1575) 34% Share Price Surge Not Quite Adding Up

Regal Partners Holdings Limited (HKG:1575) shareholders would be excited to see that the share price has had a great month, posting a 34% gain and recovering from prior weakness. Unfortunately, the gains of the last month did little to right the losses of the last year with the stock still down 20% over that time.

After such a large jump in price, when almost half of the companies in Hong Kong's Consumer Durables industry have price-to-sales ratios (or "P/S") below 0.6x, you may consider Regal Partners Holdings as a stock probably not worth researching with its 1.9x 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 as high as it is.

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Check out our latest analysis for Regal Partners Holdings

How Has Regal Partners Holdings Performed Recently?

For example, consider that Regal Partners Holdings' financial performance has been poor lately as its revenue has been in decline. Perhaps the market believes the company can do enough to outperform the rest of the industry in the near future, which is keeping the P/S ratio high. If not, then existing shareholders may be quite nervous about the viability of the share price.

How Is Regal Partners Holdings' Revenue Growth Trending?

The only time you'd be truly comfortable seeing a P/S as high as Regal Partners Holdings' is when the company's growth is on track to outshine the industry.

Retrospectively, the last year delivered a frustrating 50% decrease to the company's top line. The last three years don't look nice either as the company has shrunk revenue by 69% in aggregate. So unfortunately, we have to acknowledge that the company has not done a great job of growing revenue over that time.

Weighing that medium-term revenue trajectory against the broader industry's one-year forecast for expansion of 8.0% shows it's an unpleasant look.

With this information, we find it concerning that Regal Partners Holdings is trading at a P/S higher than the industry. 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 Bottom Line On Regal Partners Holdings' P/S

Regal Partners Holdings' P/S is on the rise since its shares have risen strongly. Using the price-to-sales ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

We've established that Regal Partners Holdings currently trades on a much higher than expected P/S since its recent revenues have been in decline over the medium-term. With a revenue decline on investors' minds, the likelihood of a souring sentiment is quite high which could send the P/S back in line with what we'd expect. 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.

We don't want to rain on the parade too much, but we did also find 4 warning signs for Regal Partners Holdings (1 doesn't sit too well with us!) that you need to be mindful of.

If these risks are making you reconsider your opinion on Regal Partners 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.