Unfortunately for some shareholders, the Mingfa Group (International) Company Limited (HKG:846) share price has dived 25% in the last thirty days, prolonging recent pain. Instead of being rewarded, shareholders who have already held through the last twelve months are now sitting on a 12% share price drop.
Although its price has dipped substantially, there still wouldn't be many who think Mingfa Group (International)'s price-to-sales (or "P/S") ratio of 0.1x is worth a mention when the median P/S in Hong Kong's Real Estate industry is similar at about 0.6x. 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:846 Price to Sales Ratio vs Industry July 2nd 2024
How Has Mingfa Group (International) Performed Recently?
For instance, Mingfa Group (International)'s receding revenue in recent times would have to be some food for thought. Perhaps investors believe the recent revenue performance is enough to keep in line with the industry, which is keeping the P/S from dropping off. If not, then existing shareholders may be a little nervous about the viability of the share price.
Want the full picture on earnings, revenue and cash flow for the company? Then our free report on Mingfa Group (International) will help you shine a light on its historical performance.
How Is Mingfa Group (International)'s Revenue Growth Trending?
Mingfa Group (International)'s 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 9.9%. This means it has also seen a slide in revenue over the longer-term as revenue is down 26% in total over the last three years. Therefore, it's fair to say the revenue growth recently has been undesirable for the company.
Weighing that medium-term revenue trajectory against the broader industry's one-year forecast for expansion of 4.1% shows it's an unpleasant look.
With this information, we find it concerning that Mingfa Group (International) is trading at a fairly similar P/S compared to the industry. 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.
The Key Takeaway
Following Mingfa Group (International)'s share price tumble, its P/S is just clinging on to the industry median P/S. Using the price-to-sales ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.
We find it unexpected that Mingfa Group (International) 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. When we see revenue heading backwards in the context of growing industry forecasts, it'd make sense to expect a possible share price decline on the horizon, sending the moderate P/S lower. Unless the recent medium-term conditions improve markedly, investors will have a hard time accepting the share price as fair value.
Before you take the next step, you should know about the 3 warning signs for Mingfa Group (International) that we have uncovered.
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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