Shares of Actions Technology Co., Ltd. (SHSE:688049) have surged by 30% in just the last month. This incredible rise brings the total annual gain to an impressive 152%, catching the attention of many investors.
However, despite this success, Actions Technology’s current price-to-sales (P/S) ratio of 12x raises some eyebrows. In the Chinese Semiconductor industry, almost half of the companies have P/S ratios below 7.2x, with some even under 3x. High P/S ratios may indicate a problem, but they can also have valid reasons behind them.
Actions Technology’s Performance Overview
Recently, Actions Technology has performed well, outpacing many competitors in revenue growth. There’s anticipation that this trend will continue, which explains the high P/S ratio. But if growth doesn’t meet expectations, current shareholders might face some anxiety over the stock’s future value.
Revenue Growth Expectations
For Actions Technology to validate its high P/S ratio, it must demonstrate exceptional growth, exceeding industry expectations.
Last year, the company boasted an impressive revenue growth of 26%. Over the last three years, revenue increased by 9.8%, boosted by solid short-term performance. This track record shows that the company can grow its revenue.
Looking ahead, the forecast suggests a 29% growth over the next year, as estimated by one analyst. Yet, the industry overall is projected to grow by 49%, placing Actions Technology in a weaker position.
Given this context, it’s puzzling that Actions Technology’s P/S surpasses that of its peers. Many investors might be overly optimistic, holding on to their shares despite signs that the P/S could drop in line with revenue growth forecasts.
Final Thoughts
The recent spike in Actions Technology’s share price has driven its P/S ratio to new heights. Typically, we prefer to use the P/S ratio to assess market sentiment about a company’s health.
It’s surprising to see Actions Technology at such a high P/S when future revenue growth looks less promising. If revenue projections remain underwhelming, the elevated P/S could come down, posing risks for current shareholders and potential investors alike.
Moreover, Actions Technology has two warning signs according to our analysis, with one being particularly concerning.
If you’re interested in companies with strong profit potential, check out our free list of appealing stocks that trade at lower P/E ratios while showing consistent earnings growth.
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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 account for your objectives or financial situation.
