With a price-to-sales (or "P/S") ratio of 0.8x Hutchison Port Holdings Trust (SGX:NS8U) may be sending bullish signals at the moment, given that almost half of all the Infrastructure companies in Singapore have P/S ratios greater than 2x and even P/S higher than 4x are not unusual. However, the P/S might be low for a reason and it requires further investigation to determine if it's justified.
SGX:NS8U Price to Sales Ratio vs Industry June 12th 2024
How Hutchison Port Holdings Trust Has Been Performing
While the industry has experienced revenue growth lately, Hutchison Port Holdings Trust's revenue has gone into reverse gear, which is not great. It seems that many are expecting the poor revenue performance to persist, which has repressed the P/S ratio. If this is the case, then existing shareholders will probably struggle to get excited about the future direction of the share price.
If you'd like to see what analysts are forecasting going forward, you should check out our free report on Hutchison Port Holdings Trust.
Do Revenue Forecasts Match The Low P/S Ratio?
There's an inherent assumption that a company should underperform the industry for P/S ratios like Hutchison Port Holdings Trust's to be considered reasonable.
Taking a look back first, the company's revenue growth last year wasn't something to get excited about as it posted a disappointing decline of 13%. This has erased any of its gains during the last three years, with practically no change in revenue being achieved in total. Accordingly, shareholders probably wouldn't have been overly satisfied with the unstable medium-term growth rates.
Looking ahead now, revenue is anticipated to climb by 1.8% each year during the coming three years according to the two analysts following the company. With the industry predicted to deliver 13% growth each year, the company is positioned for a weaker revenue result.
With this in consideration, its clear as to why Hutchison Port Holdings Trust's P/S is falling short industry peers. Apparently many shareholders weren't comfortable holding on while the company is potentially eyeing a less prosperous future.
The Final Word
While the price-to-sales ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of revenue expectations.
As expected, our analysis of Hutchison Port Holdings Trust's analyst forecasts confirms that the company's underwhelming revenue outlook is a major contributor 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. It's hard to see the share price rising strongly in the near future under these circumstances.
We don't want to rain on the parade too much, but we did also find 3 warning signs for Hutchison Port Holdings Trust (1 is potentially serious!) that you need to be mindful of.
It's important to make sure you look for a great company, not just the first idea you come across. So if growing profitability aligns with your idea of a great company, take a peek at this free list of interesting companies with strong recent earnings growth (and a low P/E).
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.