To the annoyance of some shareholders, China Oral Industry Group Holdings Limited (HKG:8406) shares are down a considerable 31% in the last month, which continues a horrid run for the company.    For any long-term shareholders, the last month ends a year to forget by locking in a 72% share price decline.  

Even after such a large drop in price, there still wouldn't be many who think China Oral Industry Group Holdings' price-to-sales (or "P/S") ratio of 0.5x is worth a mention when it essentially matches the median P/S in Hong Kong's Leisure industry.  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.    

SEHK:8406 Price to Sales Ratio vs Industry February 5th 2024

How China Oral Industry Group Holdings Has Been Performing

For instance, China Oral Industry Group Holdings' receding revenue in recent times would have to be some food for thought.   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 Oral Industry Group Holdings' earnings, revenue and cash flow.  

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

In order to justify its P/S ratio, China Oral Industry Group Holdings would need to produce growth that's similar to the industry.  

Retrospectively, the last year delivered a frustrating 41% decrease to the company's top line.   The last three years don't look nice either as the company has shrunk revenue by 44% in aggregate.  So unfortunately, we have to acknowledge that the company has not done a great job of growing revenue over that time.  

In contrast to the company, the rest of the industry is expected to grow by 2.8% over the next year, which really puts the company's recent medium-term revenue decline into perspective.

With this in mind, we find it worrying that China Oral Industry Group Holdings' P/S exceeds that of its industry peers.  It seems most investors are ignoring the recent poor growth rate and are hoping for a turnaround in the company's business prospects.  Only the boldest would assume these prices are sustainable as a continuation of recent revenue trends is likely to weigh on the share price eventually.  

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

China Oral Industry Group Holdings' plummeting stock price has brought its P/S back to a similar region as the rest of the industry.      Generally, our preference is to limit the use of the price-to-sales ratio to establishing what the market thinks about the overall health of a company.

The fact that China Oral Industry Group Holdings currently trades at a P/S on par with the rest of the industry is surprising to us since its recent revenues have been in decline over the medium-term, all while the industry is set 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.  Unless the the circumstances surrounding the recent medium-term improve, it wouldn't be wrong to expect a a difficult period ahead for the company's shareholders.    

We don't want to rain on the parade too much, but we did also find 4 warning signs for China Oral Industry Group Holdings (2 are a bit concerning!) that you need to be mindful of.  

If companies with solid past earnings growth is up your alley, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

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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.