Subdued Growth No Barrier To Lai Sun Development Company Limited (HKG:488) With Shares Advancing 32%

Simply Wall St · 10/14 22:03

Lai Sun Development Company Limited (HKG:488) shares have had a really impressive month, gaining 32% after a shaky period beforehand. Unfortunately, the gains of the last month did little to right the losses of the last year with the stock still down 24% over that time.

In spite of the firm bounce in price, there still wouldn't be many who think Lai Sun Development's price-to-sales (or "P/S") ratio of 0.2x is worth a mention when the median P/S in Hong Kong's Real Estate industry is similar at about 0.7x. 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.

See our latest analysis for Lai Sun Development

ps-multiple-vs-industry
SEHK:488 Price to Sales Ratio vs Industry October 14th 2024

What Does Lai Sun Development's P/S Mean For Shareholders?

Lai Sun Development has been doing a good job lately as it's been growing revenue at a solid pace. It might be that many expect the respectable revenue performance to wane, which has kept the P/S from rising. If you like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's not quite in favour.

Although there are no analyst estimates available for Lai Sun Development, take a look at this free data-rich visualisation to see how the company stacks up on earnings, revenue and cash flow.

Is There Some Revenue Growth Forecasted For Lai Sun Development?

The only time you'd be comfortable seeing a P/S like Lai Sun Development's is when the company's growth is tracking the industry closely.

Retrospectively, the last year delivered a decent 13% gain to the company's revenues. The solid recent performance means it was also able to grow revenue by 5.1% in total over the last three years. Therefore, it's fair to say the revenue growth recently has been respectable for the company.

Comparing that to the industry, which is predicted to deliver 5.1% growth in the next 12 months, the company's momentum is weaker, based on recent medium-term annualised revenue results.

In light of this, it's curious that Lai Sun Development's P/S sits in line with the majority of other companies. 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. They may be setting themselves up for future disappointment if the P/S falls to levels more in line with recent growth rates.

What We Can Learn From Lai Sun Development's P/S?

Its shares have lifted substantially and now Lai Sun Development'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.

We've established that Lai Sun Development's average P/S is a bit surprising since its recent three-year growth is lower than the wider industry forecast. When we see weak revenue with slower than industry growth, we suspect the share price is at risk of declining, bringing the P/S back in line with expectations. Unless the recent medium-term conditions improve, it's hard to accept the current share price as fair value.

There are also other vital risk factors to consider and we've discovered 3 warning signs for Lai Sun Development (2 are concerning!) that you should be aware of before investing here.

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