Prosperous Future Holdings Limited (HKG:1259) Looks Inexpensive After Falling 58% But Perhaps Not Attractive Enough

Simply Wall St · 04/07 23:29

Prosperous Future Holdings Limited (HKG:1259) shares have had a horrible month, losing 58% after a relatively good period beforehand. The recent drop completes a disastrous twelve months for shareholders, who are sitting on a 65% loss during that time.

Since its price has dipped substantially, Prosperous Future Holdings may be sending buy signals at present with its price-to-sales (or "P/S") ratio of 0.1x, considering almost half of all companies in the Personal Products industry in Hong Kong have P/S ratios greater than 0.7x and even P/S higher than 3x aren't out of the ordinary. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/S.

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View our latest analysis for Prosperous Future Holdings

ps-multiple-vs-industry
SEHK:1259 Price to Sales Ratio vs Industry April 7th 2025

What Does Prosperous Future Holdings' P/S Mean For Shareholders?

As an illustration, revenue has deteriorated at Prosperous Future Holdings over the last year, which is not ideal at all. Perhaps the market believes the recent revenue performance isn't good enough to keep up the industry, causing the P/S ratio to suffer. However, if this doesn't eventuate then existing shareholders may be feeling optimistic about the future direction of the share price.

We don't have analyst forecasts, but you can see how recent trends are setting up the company for the future by checking out our free report on Prosperous Future Holdings' earnings, revenue and cash flow.

What Are Revenue Growth Metrics Telling Us About The Low P/S?

In order to justify its P/S ratio, Prosperous Future Holdings would need to produce sluggish growth that's trailing the industry.

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 1.7%. This means it has also seen a slide in revenue over the longer-term as revenue is down 16% 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 26% over the next year, which really puts the company's recent medium-term revenue decline into perspective.

With this information, we are not surprised that Prosperous Future Holdings is trading at a P/S lower than the industry. However, we think shrinking revenues are unlikely to lead to a stable P/S over the longer term, which could set up shareholders for future disappointment. Even just maintaining these prices could be difficult to achieve as recent revenue trends are already weighing down the shares.

What We Can Learn From Prosperous Future Holdings' P/S?

Prosperous Future Holdings' recently weak share price has pulled its P/S back below other Personal Products companies. Using the price-to-sales ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

Our examination of Prosperous Future Holdings confirms that the company's shrinking revenue over the past medium-term is a key factor in its low price-to-sales ratio, given the industry is projected to grow. At this stage investors feel the potential for an improvement in revenue isn't great enough to justify a higher P/S ratio. If recent medium-term revenue trends continue, it's hard to see the share price moving strongly in either direction in the near future under these circumstances.

It's always necessary to consider the ever-present spectre of investment risk. We've identified 3 warning signs with Prosperous Future Holdings , and understanding them should be part of your investment process.

If these risks are making you reconsider your opinion on Prosperous Future Holdings, explore our interactive list of high quality stocks to get an idea of what else is out there.