China Beidahuang Industry Group Holdings Limited (HKG:39) May Have Run Too Fast Too Soon With Recent 28% Price Plummet

Simply Wall St · 10/17 22:09

China Beidahuang Industry Group Holdings Limited (HKG:39) shareholders that were waiting for something to happen have been dealt a blow with a 28% share price drop in the last month. The drop over the last 30 days has capped off a tough year for shareholders, with the share price down 24% in that time.

In spite of the heavy fall in price, you could still be forgiven for feeling indifferent about China Beidahuang Industry Group Holdings' P/S ratio of 0.4x, since the median price-to-sales (or "P/S") ratio for the Retail Distributors industry in Hong Kong is also close to 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 China Beidahuang Industry Group Holdings

ps-multiple-vs-industry
SEHK:39 Price to Sales Ratio vs Industry October 17th 2024

What Does China Beidahuang Industry Group Holdings' P/S Mean For Shareholders?

As an illustration, revenue has deteriorated at China Beidahuang Industry Group Holdings over the last year, which is not ideal at all. It might be that many expect the company to put the disappointing revenue performance behind them over the coming period, which has kept the P/S from falling. If you like the company, you'd at least be hoping this is the case so that you could potentially pick up some stock while it's not quite in favour.

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 Beidahuang Industry Group Holdings' earnings, revenue and cash flow.

How Is China Beidahuang Industry Group Holdings' Revenue Growth Trending?

China Beidahuang Industry Group 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.

In reviewing the last year of financials, we were disheartened to see the company's revenues fell to the tune of 5.7%. The last three years don't look nice either as the company has shrunk revenue by 1.2% in aggregate. So unfortunately, we have to acknowledge that the company has not done a great job of growing revenue over that time.

Comparing that to the industry, which is predicted to deliver 28% growth in the next 12 months, the company's downward momentum based on recent medium-term revenue results is a sobering picture.

With this information, we find it concerning that China Beidahuang Industry Group Holdings is trading at a fairly similar P/S compared to the industry. 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. There's a good chance existing shareholders are setting themselves up for future disappointment if the P/S falls to levels more in line with the recent negative growth rates.

What We Can Learn From China Beidahuang Industry Group Holdings' P/S?

China Beidahuang Industry Group Holdings' plummeting stock price has brought its P/S back to a similar region as the rest of the industry. While the price-to-sales ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of revenue expectations.

We find it unexpected that China Beidahuang Industry Group Holdings trades at a P/S ratio that is comparable to the rest of the industry, despite experiencing declining revenues during the medium-term, while the industry as a whole is expected to grow. Even though it matches the industry, we're uncomfortable with the current P/S ratio, as this dismal revenue performance is unlikely to support a more positive sentiment for long. If recent medium-term revenue trends continue, it will place shareholders' investments at risk and potential investors in danger of paying an unnecessary premium.

It is also worth noting that we have found 2 warning signs for China Beidahuang Industry Group Holdings (1 can't be ignored!) that you need to take into consideration.

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