Min Fu International Holding Limited (HKG:8511) shareholders that were waiting for something to happen have been dealt a blow with a 52% share price drop in the last month. The recent drop completes a disastrous twelve months for shareholders, who are sitting on a 87% loss during that time.

Although its price has dipped substantially, you could still be forgiven for feeling indifferent about Min Fu International Holding's P/S ratio of 0.1x, since the median price-to-sales (or "P/S") ratio for the Electronic industry in Hong Kong is also close to 0.4x. 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.

What Does Min Fu International Holding's P/S Mean For Shareholders?

With revenue growth that's exceedingly strong of late, Min Fu International Holding has been doing very well. Perhaps the market is expecting future revenue performance to taper off, 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.

Do Revenue Forecasts Match The P/S Ratio?

The only time you'd be comfortable seeing a P/S like Min Fu International Holding's is when the company's growth is tracking the industry closely.

If we review the last year of revenue growth, the company posted a terrific increase of 152%. The latest three year period has also seen an excellent 101% overall rise in revenue, aided by its short-term performance. So we can start by confirming that the company has done a great job of growing revenue over that time.

Comparing that recent medium-term revenue trajectory with the industry's one-year growth forecast of 23% shows it's noticeably more attractive.

In light of this, it's curious that Min Fu International Holding's P/S sits in line with the majority of other companies. Apparently some shareholders believe the recent performance is at its limits and have been accepting lower selling prices.

The Key Takeaway

Following Min Fu International Holding's share price tumble, its P/S is just clinging on to the industry median P/S. It's argued the price-to-sales ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

We didn't quite envision Min Fu International Holding's P/S sitting in line with the wider industry, considering the revenue growth over the last three-year is higher than the current industry outlook. There could be some unobserved threats to revenue preventing the P/S ratio from matching this positive performance. At least the risk of a price drop looks to be subdued if recent medium-term revenue trends continue, but investors seem to think future revenue could see some volatility.

It is also worth noting that we have found 3 warning signs for Min Fu International Holding that you need to take into consideration.

If you're unsure about the strength of Min Fu International Holding's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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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.