There's No Escaping Asia Cassava Resources Holdings Limited's (HKG:841) Muted Revenues Despite A 109% Share Price Rise
Asia Cassava Resources Holdings Limited (HKG:841) shareholders have had their patience rewarded with a 109% share price jump in the last month. The annual gain comes to 106% following the latest surge, making investors sit up and take notice.
Even after such a large jump in price, when close to half the companies operating in Hong Kong's Food industry have price-to-sales ratios (or "P/S") above 0.7x, you may still consider Asia Cassava Resources Holdings as an enticing stock to check out with its 0.1x 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 limited.
See our latest analysis for Asia Cassava Resources Holdings
How Has Asia Cassava Resources Holdings Performed Recently?
Asia Cassava Resources Holdings 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 dwindle, which has kept the P/S suppressed. Those who are bullish on Asia Cassava Resources 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 Asia Cassava Resources 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?
In order to justify its P/S ratio, Asia Cassava Resources Holdings would need to produce sluggish growth that's trailing the industry.
Taking a look back first, we see that the company grew revenue by an impressive 75% last year. Despite this strong recent growth, it's still struggling to catch up as its three-year revenue frustratingly shrank by 67% overall. Therefore, it's fair to say the revenue growth recently has been undesirable for the company.
Weighing that medium-term revenue trajectory against the broader industry's one-year forecast for expansion of 4.7% shows it's an unpleasant look.
With this in mind, we understand why Asia Cassava Resources Holdings' P/S is lower than most of its industry peers. 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. Even just maintaining these prices could be difficult to achieve as recent revenue trends are already weighing down the shares.
What Does Asia Cassava Resources Holdings' P/S Mean For Investors?
Asia Cassava Resources Holdings' stock price has surged recently, but its but its P/S still remains modest. 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.
Our examination of Asia Cassava Resources 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. Given the current circumstances, it seems unlikely that the share price will experience any significant movement in either direction in the near future if recent medium-term revenue trends persist.
It's always necessary to consider the ever-present spectre of investment risk. We've identified 3 warning signs with Asia Cassava Resources Holdings (at least 2 which can't be ignored), and understanding them should be part of your investment process.
It's important to make sure you look for a great company, not just the first idea you come across. So if growing profitability aligns with your idea of a great company, take a peek at this free list of interesting companies with strong recent earnings growth (and a low P/E).
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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.