Yahoo Finance ES Group (Holdings) Limited (Catalist:5RC) May Have Run Too Fast Too Soon With Recent 37% Price Plummet
ES Group (Holdings) Limited (Catalist:5RC) shareholders that were waiting for something to happen have been dealt a blow with a 37% 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 39% share price drop.
Although its price has dipped substantially, it's still not a stretch to say that ES Group (Holdings)'s price-to-sales (or "P/S") ratio of 0.1x right now seems quite "middle-of-the-road" compared to the Machinery industry in Singapore, where the median P/S ratio is around 0.5x. Although, it's not wise to simply ignore the P/S without explanation as investors may be disregarding a distinct opportunity or a costly mistake.
Check out our latest analysis for ES Group (Holdings)
What Does ES Group (Holdings)'s Recent Performance Look Like?
With revenue growth that's exceedingly strong of late, ES Group (Holdings) has been doing very well. The P/S is probably moderate because investors think this strong revenue growth might not be enough to outperform the broader industry in the near future. Those who are bullish on ES Group (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 ES Group (Holdings), take a look at this free data-rich visualisation to see how the company stacks up on earnings, revenue and cash flow.
What Are Revenue Growth Metrics Telling Us About The P/S?
The only time you'd be comfortable seeing a P/S like ES Group (Holdings)'s is when the company's growth is tracking the industry closely.
Taking a look back first, we see that the company grew revenue by an impressive 55% last year. As a result, it also grew revenue by 17% in total over the last three years. Accordingly, shareholders would have probably been satisfied with the medium-term rates of revenue growth.
Comparing the recent medium-term revenue trends against the industry's one-year growth forecast of 106% shows it's noticeably less attractive.
With this in mind, we find it intriguing that ES Group (Holdings)'s P/S is comparable to that of its industry peers. It seems most investors are ignoring the fairly limited recent growth rates and are willing to pay up for exposure to the stock. Maintaining these prices will be difficult to achieve as a continuation of recent revenue trends is likely to weigh down the shares eventually.
What We Can Learn From ES Group (Holdings)'s P/S?
With its share price dropping off a cliff, the P/S for ES Group (Holdings) looks to be in line with the rest of the Machinery industry. Generally, our preference is to limit the use of the price-to-sales ratio to establishing what the market thinks about the overall health of a company.
Our examination of ES Group (Holdings) revealed its poor three-year revenue trends aren't resulting in a lower P/S as per our expectations, given they look worse than current industry outlook. Right now we are uncomfortable with the P/S as this revenue performance isn't likely to support a more positive sentiment for long. Unless there is a significant improvement in the company's medium-term performance, it will be difficult to prevent the P/S ratio from declining to a more reasonable level.
Don't forget that there may be other risks. For instance, we've identified 3 warning signs for ES Group (Holdings) that you should be aware of.
If these risks are making you reconsider your opinion on ES Group (Holdings), explore our interactive list of high quality stocks to get an idea of what else is out there.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
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.
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