Optima Automobile Group Holdings Limited (HKG:8418) shareholders will no doubt be happy to see the share price up 44% in the last month, but it’s still struggling to regain some recent loss. Unfortunately, last month’s gains did little to make up for last year’s losses, with the stock still down 38% in that time.
Even after such a significant price increase, it’s understandable to be indifferent about Optima Automobile Group Holdings’ P/S multiple of 0.9x. Specialty retail in Hong Kong is also close to 0.4x. However, it is unwise to simply ignore the income statement without explanation, as investors may be ignoring clear opportunities or costly mistakes.
Check out our latest analysis for Optima Automobile Group Holdings.
Performance of Optima Automobile Group Holdings
The revenue growth that Optima Automobile Group Holdings achieved last year would be more than most companies would tolerate. One possibility is that investors believe this respectable earnings growth isn’t enough to outperform the broader industry in the near term, so the P/S is moderate. Those who are bullish on Optima Automobile Group Holdings would be hoping that’s not the case, and that they can pick up the stock at a lower valuation.
We don’t have analyst forecasts, but checking our forecasts will tell you how recent trends are setting up the company’s future. free Optima Automobile Group Holdings’ earnings, revenue and cash flow report.
Does the earnings forecast match the P/S ratio?
To justify its P/S ratio, Optima Automobile Group Holdings would need to grow in line with its industry.
Looking back, the company achieved an unusual 24% increase in revenue last year. This impressive performance means we have been able to achieve significant revenue growth over the past three years. So we can start by seeing that the company has done a great job of growing its earnings over that period.
Compared to the industry’s one-year growth forecast of 16%, the latest medium-term earnings trajectory is significantly attractive.
With this in mind, it’s interesting to see that Optima Automobile Group Holdings’ P/L is in line with most other companies. Some shareholders appear to be accepting a lower sales price, believing recent performance has reached its limits.
The last word
Optima Automobile Group Holdings’ stock has had great momentum lately, and its P/S level is on par with other industries. Although it is not wise to use the price-to-sales ratio alone to decide whether to sell a stock, it can be a practical guide to a company’s future prospects.
Given that its revenue growth over the past three years has been higher than current industry expectations, we never expected Optima Automobile Group Holdings’ P&L to be in line with the industry as a whole. There may be unseen threats to earnings that are preventing the P/S ratio from matching this good performance. If recent medium-term earnings trends continue, the risk of price declines appears to be at least contained, although investors seem to believe that future earnings could be subject to some volatility.
For example, you should be aware of the following risks: Optima Automobile Group Holdings has 4 warning signs (and 1 is a concern) I think you should know.
the important thing is, Make sure to look for great companies, not just the first idea you come across. So if increasing profitability matches your idea of a great company, give this one a peek. free A list of interesting companies with high recent earnings growth (and low P/E ratios).
Valuation is complex, but we help make it simple.
Check out our comprehensive analysis to see if Optima Automobile Group Holdings, Inc. is potentially overvalued or undervalued. Fair value estimates, risks and caveats, dividends, insider trading, and financial health.
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This article by Simply Wall St is general in nature. We provide commentary using only unbiased methodologies, based on historical data and analyst forecasts, and articles are not intended to be financial advice. This is not a recommendation to buy or sell any stock, and does not take into account your objectives or financial situation. We aim to provide long-term, focused analysis based on fundamental data. Note that our analysis may not factor in the latest announcements or qualitative material from price-sensitive companies. Simply Wall St has no position in any stocks mentioned.