Phoenitron Holdings Limited's (HKG:8066) Share Price Is Still Matching Investor Opinion Despite 29% Slump

The Phoenitron Holdings Limited (HKG:8066) share price has softened a substantial 29% over the previous 30 days, handing back much of the gains the stock has made lately. Nonetheless, the last 30 days have barely left a scratch on the stock's annual performance, which is up a whopping 599%.

In spite of the heavy fall in price, you could still be forgiven for thinking Phoenitron Holdings is a stock not worth researching with a price-to-sales ratios (or "P/S") of 2.5x, considering almost half the companies in Hong Kong's Tech industry have P/S ratios below 1.2x. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the elevated P/S.

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Check out our latest analysis for Phoenitron Holdings

What Does Phoenitron Holdings' P/S Mean For Shareholders?

Recent times have been quite advantageous for Phoenitron Holdings as its revenue has been rising very briskly. 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.

What Are Revenue Growth Metrics Telling Us About The High P/S?

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

If we review the last year of revenue growth, the company posted a terrific increase of 99%. Pleasingly, revenue has also lifted 88% in aggregate from three years ago, thanks to the last 12 months of growth. Accordingly, shareholders would have definitely welcomed those medium-term rates of revenue growth.

When compared to the industry's one-year growth forecast of 17%, the most recent medium-term revenue trajectory is noticeably more alluring

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

What We Can Learn From Phoenitron Holdings' P/S?

There's still some elevation in Phoenitron Holdings' P/S, even if the same can't be said for its share price recently. 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.

It's no surprise that Phoenitron Holdings can support its high P/S given the strong revenue growth its experienced over the last three-year is superior to the current industry outlook. In the eyes of shareholders, the probability of a continued growth trajectory is great enough to prevent the P/S from pulling back. Unless the recent medium-term conditions change, they will continue to provide strong support to the share price.

Plus, you should also learn about these 3 warning signs we've spotted with Phoenitron Holdings (including 1 which is potentially serious).

Of course, profitable companies with a history of great earnings growth are generally safer bets. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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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.