Take Care Before Jumping Onto RAS Technology Holdings Limited (ASX:RTH) Even Though It's 29% Cheaper
RAS Technology Holdings Limited (ASX:RTH) shareholders that were waiting for something to happen have been dealt a blow with a 29% share price drop in the last month. Instead of being rewarded, shareholders who have already held through the last twelve months are now sitting on a 14% share price drop.
Even after such a large drop in price, there still wouldn't be many who think RAS Technology Holdings' price-to-sales (or "P/S") ratio of 1.7x is worth a mention when it essentially matches the median P/S in Australia's Professional Services industry. While this might not raise any eyebrows, if the P/S ratio is not justified investors could be missing out on a potential opportunity or ignoring looming disappointment.
View our latest analysis for RAS Technology Holdings
What Does RAS Technology Holdings' Recent Performance Look Like?
With revenue growth that's superior to most other companies of late, RAS Technology Holdings has been doing relatively well. One possibility is that the P/S ratio is moderate because investors think this strong revenue performance might be about to tail off. If not, then existing shareholders have reason to be feeling optimistic about the future direction of the share price.
Keen to find out how analysts think RAS Technology Holdings' future stacks up against the industry? In that case, our free report is a great place to start.How Is RAS Technology Holdings' Revenue Growth Trending?
There's an inherent assumption that a company should be matching the industry for P/S ratios like RAS Technology Holdings' to be considered reasonable.
Retrospectively, the last year delivered an exceptional 31% gain to the company's top line. The latest three year period has also seen an excellent 155% overall rise in revenue, aided by its short-term performance. Accordingly, shareholders would have definitely welcomed those medium-term rates of revenue growth.
Looking ahead now, revenue is anticipated to climb by 23% each year during the coming three years according to the lone analyst following the company. That's shaping up to be materially higher than the 4.4% per annum growth forecast for the broader industry.
In light of this, it's curious that RAS Technology Holdings' P/S sits in line with the majority of other companies. It may be that most investors aren't convinced the company can achieve future growth expectations.
What Does RAS Technology Holdings' P/S Mean For Investors?
With its share price dropping off a cliff, the P/S for RAS Technology Holdings looks to be in line with the rest of the Professional Services industry. We'd say the price-to-sales ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.
Despite enticing revenue growth figures that outpace the industry, RAS Technology Holdings' P/S isn't quite what we'd expect. When we see a strong revenue outlook, with growth outpacing the industry, we can only assume potential uncertainty around these figures are what might be placing slight pressure on the P/S ratio. At least the risk of a price drop looks to be subdued, but investors seem to think future revenue could see some volatility.
Before you settle on your opinion, we've discovered 3 warning signs for RAS Technology Holdings that you should be aware of.
If you're unsure about the strength of RAS Technology Holdings' 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.