Milan Station Holdings Limited (HKG:1150) shares have retraced a considerable 28% in the last month, reversing a fair amount of their solid recent performance. Instead of being rewarded, shareholders who have already held through the last twelve months are now sitting on a 40% share price drop.

Even after such a large drop in price, it's still not a stretch to say that Milan Station Holdings' price-to-sales (or "P/S") ratio of 0.4x right now seems quite "middle-of-the-road" compared to the Specialty Retail industry in Hong Kong, seeing as it matches the P/S ratio of the wider industry. 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.

What Does Milan Station Holdings' Recent Performance Look Like?

For example, consider that Milan Station Holdings' financial performance has been poor lately as its revenue has been in decline. One possibility is that the P/S is moderate because investors think the company might still do enough to be in line with the broader industry in the near future. If not, then existing shareholders may be a little nervous about the viability of the share price.

How Is Milan Station Holdings' Revenue Growth Trending?

There's an inherent assumption that a company should be matching the industry for P/S ratios like Milan Station Holdings' to be considered reasonable.

In reviewing the last year of financials, we were disheartened to see the company's revenues fell to the tune of 14%. Regardless, revenue has managed to lift by a handy 21% in aggregate from three years ago, thanks to the earlier period of growth. So we can start by confirming that the company has generally done a good job of growing revenue over that time, even though it had some hiccups along the way.

Comparing the recent medium-term revenue trends against the industry's one-year growth forecast of 16% shows it's noticeably less attractive.

With this in mind, we find it intriguing that Milan Station Holdings' P/S is comparable to that of its industry peers. 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.

The Bottom Line On Milan Station Holdings' P/S

With its share price dropping off a cliff, the P/S for Milan Station Holdings looks to be in line with the rest of the Specialty Retail industry. We'd say the price-to-sales ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

We've established that Milan Station Holdings' average P/S is a bit surprising since its recent three-year growth is lower than the wider industry forecast. Right now we are uncomfortable with the P/S as this revenue performance isn't likely to support a more positive sentiment for long. Unless there is a significant improvement in the company's medium-term performance, it will be difficult to prevent the P/S ratio from declining to a more reasonable level.

You should always think about risks. Case in point, we've spotted 2 warning signs for Milan Station Holdings you should be aware of, and 1 of them is a bit concerning.

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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