Fenbo Holdings Limited (NASDAQ:FEBO) Stock Rockets 85% As Investors Are Less Pessimistic Than Expected

The Fenbo Holdings Limited (NASDAQ:FEBO) share price has done very well over the last month, posting an excellent gain of 85%. Unfortunately, the gains of the last month did little to right the losses of the last year with the stock still down 21% over that time.

In spite of the firm bounce in price, there still wouldn't be many who think Fenbo Holdings' price-to-sales (or "P/S") ratio of 1x is worth a mention when the median P/S in the United States' Consumer Durables industry is similar at about 0.6x. 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.

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Check out our latest analysis for Fenbo Holdings

What Does Fenbo Holdings' Recent Performance Look Like?

As an illustration, revenue has deteriorated at Fenbo Holdings over the last year, which is not ideal at all. It might be that many expect the company to put the disappointing revenue performance behind them over the coming period, which has kept the P/S from falling. If you like the company, you'd at least be hoping this is the case so that you could potentially pick up some stock while it's not quite in favour.

Although there are no analyst estimates available for Fenbo Holdings, take a look at this free data-rich visualisation to see how the company stacks up on earnings, revenue and cash flow.

Do Revenue Forecasts Match The P/S Ratio?

The only time you'd be comfortable seeing a P/S like Fenbo Holdings' is when the company's growth is tracking the industry closely.

Retrospectively, the last year delivered a frustrating 15% decrease to the company's top line. This means it has also seen a slide in revenue over the longer-term as revenue is down 23% in total over the last three years. So unfortunately, we have to acknowledge that the company has not done a great job of growing revenue over that time.

In contrast to the company, the rest of the industry is expected to grow by 1.8% over the next year, which really puts the company's recent medium-term revenue decline into perspective.

With this information, we find it concerning that Fenbo Holdings is trading at a fairly similar P/S compared to the industry. It seems most investors are ignoring the recent poor growth rate and are hoping for a turnaround in the company's business prospects. Only the boldest would assume these prices are sustainable as a continuation of recent revenue trends is likely to weigh on the share price eventually.

What Does Fenbo Holdings' P/S Mean For Investors?

Its shares have lifted substantially and now Fenbo Holdings' P/S is back within range of the industry median. Typically, we'd caution against reading too much into price-to-sales ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

Our look at Fenbo Holdings revealed its shrinking revenues over the medium-term haven't impacted the P/S as much as we anticipated, given the industry is set to grow. Even though it matches the industry, we're uncomfortable with the current P/S ratio, as this dismal revenue performance is unlikely to support a more positive sentiment for long. Unless the recent medium-term conditions improve markedly, investors will have a hard time accepting the share price as fair value.

It is also worth noting that we have found 3 warning signs for Fenbo Holdings (1 is a bit unpleasant!) that you need to take into consideration.

If you're unsure about the strength of Fenbo Holdings' business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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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.