Revenues Working Against Pan Asia Data Holdings Inc.'s (HKG:1561) Share Price Following 33% Dive

Pan Asia Data Holdings Inc. (HKG:1561) shareholders that were waiting for something to happen have been dealt a blow with a 33% 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 32% share price drop.

Since its price has dipped substantially, considering around half the companies operating in Hong Kong's IT industry have price-to-sales ratios (or "P/S") above 1.1x, you may consider Pan Asia Data Holdings as an solid investment opportunity with its 0.3x P/S ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/S.

Check out our latest analysis for Pan Asia Data Holdings

What Does Pan Asia Data Holdings' P/S Mean For Shareholders?

Pan Asia Data Holdings has been doing a good job lately as it's been growing revenue at a solid pace. It might be that many expect the respectable revenue performance to degrade substantially, which has repressed the P/S. If you like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's out of favour.

Is There Any Revenue Growth Forecasted For Pan Asia Data Holdings?

The only time you'd be truly comfortable seeing a P/S as low as Pan Asia Data Holdings' is when the company's growth is on track to lag the industry.

If we review the last year of revenue growth, the company posted a terrific increase of 23%. Still, revenue has fallen 20% in total from three years ago, which is quite disappointing. Therefore, it's fair to say the revenue growth recently has been undesirable for the company.

Comparing that to the industry, which is predicted to deliver 9.2% growth in the next 12 months, the company's downward momentum based on recent medium-term revenue results is a sobering picture.

With this information, we are not surprised that Pan Asia Data Holdings is trading at a P/S lower than the industry. Nonetheless, there's no guarantee the P/S has reached a floor yet with revenue going in reverse. There's potential for the P/S to fall to even lower levels if the company doesn't improve its top-line growth.

The Bottom Line On Pan Asia Data Holdings' P/S

The southerly movements of Pan Asia Data Holdings' shares means its P/S is now sitting at a pretty low level. 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.

As we suspected, our examination of Pan Asia Data Holdings revealed its shrinking revenue over the medium-term is contributing to its low P/S, given the industry is set to grow. Right now shareholders are accepting the low P/S as they concede future revenue probably won't provide any pleasant surprises either. If recent medium-term revenue trends continue, it's hard to see the share price moving strongly in either direction in the near future under these circumstances.

It is also worth noting that we have found 3 warning signs for Pan Asia Data Holdings (1 makes us a bit uncomfortable!) that you need to take into consideration.

If strong companies turning a profit tickle your fancy, then you'll want to check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).

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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.