Renrui Human Resources Technology Holdings Limited's (HKG:6919) Revenues Are Not Doing Enough For Some Investors

With a price-to-sales (or "P/S") ratio of 0.1x Renrui Human Resources Technology Holdings Limited (HKG:6919) may be sending bullish signals at the moment, given that almost half of all the Professional Services companies in Hong Kong have P/S ratios greater than 1x and even P/S higher than 4x are not unusual. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's limited.

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See our latest analysis for Renrui Human Resources Technology Holdings

What Does Renrui Human Resources Technology Holdings' P/S Mean For Shareholders?

With its revenue growth in positive territory compared to the declining revenue of most other companies, Renrui Human Resources Technology Holdings has been doing quite well of late. Perhaps the market is expecting future revenue performance to follow the rest of the industry downwards, which has kept the P/S suppressed. Those who are bullish on Renrui Human Resources Technology Holdings will be hoping that this isn't the case and the company continues to beat out the industry.

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Is There Any Revenue Growth Forecasted For Renrui Human Resources Technology Holdings?

The only time you'd be truly comfortable seeing a P/S as low as Renrui Human Resources Technology 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 35%. The strong recent performance means it was also able to grow revenue by 39% in total over the last three years. Therefore, it's fair to say the revenue growth recently has been superb for the company.

Looking ahead now, revenue is anticipated to slump, contracting by 1.0% during the coming year according to the sole analyst following the company. With the industry predicted to deliver 12% growth, that's a disappointing outcome.

With this information, we are not surprised that Renrui Human Resources Technology Holdings is trading at a P/S lower than the industry. However, shrinking revenues are unlikely to lead to a stable P/S over the longer term. Even just maintaining these prices could be difficult to achieve as the weak outlook is weighing down the shares.

What Does Renrui Human Resources Technology Holdings' P/S Mean For Investors?

It's argued the price-to-sales ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

As we suspected, our examination of Renrui Human Resources Technology Holdings' analyst forecasts revealed that its outlook for shrinking revenue is contributing to its low P/S. At this stage investors feel the potential for an improvement in revenue isn't great enough to justify a higher P/S ratio. Unless these conditions improve, they will continue to form a barrier for the share price around these levels.

It's always necessary to consider the ever-present spectre of investment risk. We've identified 2 warning signs with Renrui Human Resources Technology Holdings (at least 1 which is potentially serious), and understanding these should be part of your investment process.

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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.