Optimistic Investors Push HB Global Limited (KLSE:HBGLOB) Shares Up 29% But Growth Is Lacking

Those holding HB Global Limited (KLSE:HBGLOB) shares would be relieved that the share price has rebounded 29% in the last thirty days, but it needs to keep going to repair the recent damage it has caused to investor portfolios. Unfortunately, the gains of the last month did little to right the losses of the last year with the stock still down 44% over that time.

Although its price has surged higher, you could still be forgiven for feeling indifferent about HB Global’s P/S ratio of 0.7x, since the median price-to-sales (or “P/S”) ratio for the Food industry in Malaysia is also close to 1.2x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/S.

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See our latest analysis for HB Global

What Does HB Global’s Recent Performance Look Like?

Revenue has risen at a steady rate over the last year for HB Global, which is generally not a bad outcome. It might be that many expect the respectable revenue performance to only match most other companies over the coming period, which has kept the P/S from rising. If not, then at least existing shareholders probably aren’t too pessimistic 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 HB Global’s earnings, revenue and cash flow.

Is There Some Revenue Growth Forecasted For HB Global?

The only time you’d be comfortable seeing a P/S like HB Global’s is when the company’s growth is tracking the industry closely.

Retrospectively, the last year delivered a decent 5.6% gain to the company’s revenues. Ultimately though, it couldn’t turn around the poor performance of the prior period, with revenue shrinking 10% 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.

Weighing that medium-term revenue trajectory against the broader industry’s one-year forecast for expansion of 3.9% shows it’s an unpleasant look.

In light of this, it’s somewhat alarming that HB Global’s P/S sits in line with the majority of other companies. Apparently many investors in the company are way less bearish than recent times would indicate and aren’t willing to let go of their stock right now. 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.

The Bottom Line On HB Global’s P/S

Its shares have lifted substantially and now HB Global’s P/S is back within range of the industry median. 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 look at HB Global 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. When we see revenue heading backwards in the context of growing industry forecasts, it’d make sense to expect a possible share price decline on the horizon, sending the moderate P/S lower. Unless the the circumstances surrounding the recent medium-term improve, it wouldn’t be wrong to expect a a difficult period ahead for the company’s shareholders.

Plus, you should also learn about these 2 warning signs we’ve spotted with HB Global.

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

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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.