Xinhua News Media Holdings Limited (HKG:309) shareholders that were waiting for something to happen have been dealt a blow with a 30% share price drop in the last month. Looking back over the past twelve months the stock has been a solid performer regardless, with a gain of 19%.

Even after such a large drop in price, you could still be forgiven for feeling indifferent about Xinhua News Media Holdings' P/S ratio of 0.2x, since the median price-to-sales (or "P/S") ratio for the Commercial Services industry in Hong Kong is also close to 0.5x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/S.

What Does Xinhua News Media Holdings' P/S Mean For Shareholders?

Revenue has risen firmly for Xinhua News Media Holdings recently, which is pleasing to see. Perhaps the market is expecting future revenue performance to only keep up with the broader industry, which has keeping the P/S in line with expectations. Those who are bullish on Xinhua News Media Holdings will be hoping that this isn't the case, so that they can pick up the stock at a lower valuation.

How Is Xinhua News Media Holdings' Revenue Growth Trending?

Xinhua News Media 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.

Retrospectively, the last year delivered an exceptional 18% gain to the company's top line. As a result, it also grew revenue by 30% in total over the last three years. Therefore, it's fair to say the revenue growth recently has been respectable for the company.

This is in contrast to the rest of the industry, which is expected to grow by 5.7% over the next year, materially lower than the company's recent medium-term annualised growth rates.

In light of this, it's curious that Xinhua News Media Holdings' 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.

What We Can Learn From Xinhua News Media Holdings' P/S?

With its share price dropping off a cliff, the P/S for Xinhua News Media Holdings looks to be in line with the rest of the Commercial Services 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.

To our surprise, Xinhua News Media Holdings revealed its three-year revenue trends aren't contributing to its P/S as much as we would have predicted, given they look better than current industry expectations. It'd be fair to assume that potential risks the company faces could be the contributing factor to the lower than expected P/S. It appears some are indeed anticipating revenue instability, because the persistence of these recent medium-term conditions would normally provide a boost to the share price.

You should always think about risks. Case in point, we've spotted 4 warning signs for Xinhua News Media Holdings you should be aware of, and 3 of them make us uncomfortable.

If strong companies turning a profit tickle your fancy, then you'll want to check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).

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