Market Cool On China Supply Chain Holdings Limited's (HKG:3708) Revenues Pushing Shares 29% Lower
The China Supply Chain Holdings Limited (HKG:3708) share price has softened a substantial 29% over the previous 30 days, handing back much of the gains the stock has made lately. Looking at the bigger picture, even after this poor month the stock is up 38% in the last year.
In spite of the heavy fall in price, it's still not a stretch to say that China Supply Chain Holdings' price-to-sales (or "P/S") ratio of 0.3x right now seems quite "middle-of-the-road" compared to the Construction industry in Hong Kong, where the median P/S ratio is around 0.4x. Although, it's not wise to simply ignore the P/S without explanation as investors may be disregarding a distinct opportunity or a costly mistake.
See our latest analysis for China Supply Chain Holdings
How Has China Supply Chain Holdings Performed Recently?
The revenue growth achieved at China Supply Chain Holdings over the last year would be more than acceptable for most companies. Perhaps the market is expecting future revenue performance to only keep up with the broader industry, which has keeping the P/S in line with expectations. Those who are bullish on China Supply Chain Holdings 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 China Supply Chain Holdings' earnings, revenue and cash flow.Is There Some Revenue Growth Forecasted For China Supply Chain Holdings?
China Supply Chain Holdings' P/S ratio would be typical for a company that's only expected to deliver moderate growth, and importantly, perform in line with the industry.
Retrospectively, the last year delivered a decent 13% gain to the company's revenues. This was backed up an excellent period prior to see revenue up by 101% in total over the last three years. Therefore, it's fair to say the revenue growth recently has been superb for the company.
Comparing that recent medium-term revenue trajectory with the industry's one-year growth forecast of 9.5% shows it's noticeably more attractive.
With this information, we find it interesting that China Supply Chain Holdings is trading at a fairly similar P/S compared to the industry. Apparently some shareholders believe the recent performance is at its limits and have been accepting lower selling prices.
The Bottom Line On China Supply Chain Holdings' P/S
With its share price dropping off a cliff, the P/S for China Supply Chain Holdings looks to be in line with the rest of the Construction 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.
To our surprise, China Supply Chain Holdings 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. While recent revenue trends over the past medium-term suggest that the risk of a price decline is low, investors appear to see the likelihood of revenue fluctuations in the future.
It's always necessary to consider the ever-present spectre of investment risk. We've identified 3 warning signs with China Supply Chain Holdings (at least 1 which is significant), and understanding these should be part of your investment process.
If strong companies turning a profit tickle your fancy, then you'll want to check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).
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.