Tianli Holdings Group Limited (HKG:117) Shares May Have Slumped 32% But Getting In Cheap Is Still Unlikely
To the annoyance of some shareholders, Tianli Holdings Group Limited (HKG:117) shares are down a considerable 32% in the last month, which continues a horrid run for the company. Looking at the bigger picture, even after this poor month the stock is up 50% in the last year.
Even after such a large drop in price, there still wouldn't be many who think Tianli Holdings Group's price-to-sales (or "P/S") ratio of 0.3x is worth a mention when the median P/S in Hong Kong's Electronic industry is similar at about 0.5x. While this might not raise any eyebrows, if the P/S ratio is not justified investors could be missing out on a potential opportunity or ignoring looming disappointment.
View our latest analysis for Tianli Holdings Group
How Tianli Holdings Group Has Been Performing
Revenue has risen firmly for Tianli Holdings Group recently, which is pleasing to see. One possibility is that the P/S is moderate because investors think this respectable revenue growth might not be enough to outperform the broader industry in the near future. Those who are bullish on Tianli Holdings Group will be hoping that this isn't the case, so that they can pick up the stock at a lower valuation.
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 Tianli Holdings Group's earnings, revenue and cash flow.What Are Revenue Growth Metrics Telling Us About The P/S?
There's an inherent assumption that a company should be matching the industry for P/S ratios like Tianli Holdings Group's to be considered reasonable.
Taking a look back first, we see that the company grew revenue by an impressive 28% last year. Pleasingly, revenue has also lifted 48% in aggregate from three years ago, thanks to the last 12 months of growth. So we can start by confirming that the company has done a great job of growing revenue over that time.
Comparing the recent medium-term revenue trends against the industry's one-year growth forecast of 17% shows it's noticeably less attractive.
With this in mind, we find it intriguing that Tianli Holdings Group's P/S is comparable to that of its industry peers. Apparently many investors in the company are less bearish than recent times would indicate and aren't willing to let go of their stock right now. Maintaining these prices will be difficult to achieve as a continuation of recent revenue trends is likely to weigh down the shares eventually.
The Final Word
With its share price dropping off a cliff, the P/S for Tianli Holdings Group looks to be in line with the rest of the Electronic industry. 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.
We've established that Tianli Holdings Group's average P/S is a bit surprising since its recent three-year growth is lower than the wider industry forecast. Right now we are uncomfortable with the P/S as this revenue performance isn't likely to support a more positive sentiment for long. Unless there is a significant improvement in the company's medium-term performance, it will be difficult to prevent the P/S ratio from declining to a more reasonable level.
It's always necessary to consider the ever-present spectre of investment risk. We've identified 4 warning signs with Tianli Holdings Group (at least 3 which are concerning), and understanding these should be part of your investment process.
Of course, profitable companies with a history of great earnings growth are generally safer bets. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.
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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.