Not Many Are Piling Into Qing Hua Holding Group Company Limited (HKG:8082) Stock Yet As It Plummets 26%
Unfortunately for some shareholders, the Qing Hua Holding Group Company Limited (HKG:8082) share price has dived 26% in the last thirty days, prolonging recent pain. Looking at the bigger picture, even after this poor month the stock is up 88% in the last year.
Even after such a large drop in price, you could still be forgiven for feeling indifferent about Qing Hua Holding Group's P/S ratio of 1.4x, since the median price-to-sales (or "P/S") ratio for the Entertainment industry in Hong Kong is also close to 1.8x. 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.
Check out our latest analysis for Qing Hua Holding Group
How Has Qing Hua Holding Group Performed Recently?
For instance, Qing Hua Holding Group's receding revenue in recent times would have to be some food for thought. Perhaps investors believe the recent revenue performance is enough to keep in line with the industry, which is keeping the P/S from dropping off. If not, then existing shareholders may be a little nervous about the viability 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 Qing Hua Holding Group's earnings, revenue and cash flow.What Are Revenue Growth Metrics Telling Us About The P/S?
The only time you'd be comfortable seeing a P/S like Qing Hua Holding Group's is when the company's growth is tracking the industry closely.
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 61%. However, a few very strong years before that means that it was still able to grow revenue by an impressive 178% in total over the last three years. Although it's been a bumpy ride, it's still fair to say the revenue growth recently has been more than adequate for the company.
This is in contrast to the rest of the industry, which is expected to grow by 10% over the next year, materially lower than the company's recent medium-term annualised growth rates.
With this information, we find it interesting that Qing Hua Holding Group is trading at a fairly similar P/S compared to the industry. It may be that most investors are not convinced the company can maintain its recent growth rates.
What We Can Learn From Qing Hua Holding Group's P/S?
Qing Hua Holding Group's plummeting stock price has brought its P/S back to a similar region as the rest of the industry. It's argued the price-to-sales ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.
To our surprise, Qing Hua Holding Group revealed its three-year revenue trends aren't contributing to its P/S as much as we would have predicted, given they look better than current industry expectations. It'd be fair to assume that potential risks the company faces could be the contributing factor to the lower than expected P/S. At least the risk of a price drop looks to be subdued if recent medium-term revenue trends continue, but investors seem to think future revenue could see some volatility.
You should always think about risks. Case in point, we've spotted 3 warning signs for Qing Hua Holding Group you should be aware of, and 2 of them are a bit concerning.
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.