To the annoyance of some shareholders, Feiyang International Holdings Group Limited (HKG:1901) shares are down a considerable 28% in the last month, which continues a horrid run for the company. The recent drop completes a disastrous twelve months for shareholders, who are sitting on a 94% loss during that time.

Since its price has dipped substantially, when close to half the companies operating in Hong Kong's Hospitality industry have price-to-sales ratios (or "P/S") above 0.6x, you may consider Feiyang International Holdings Group as an enticing stock to check out with its 0.1x P/S ratio. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's limited.

How Feiyang International Holdings Group Has Been Performing

Recent times have been quite advantageous for Feiyang International Holdings Group as its revenue has been rising very briskly. One possibility is that the P/S ratio is low because investors think this strong revenue growth might actually underperform the broader industry in the near future. Those who are bullish on Feiyang International Holdings Group will be hoping that this isn't the case, so that they can pick up the stock at a lower valuation.

What Are Revenue Growth Metrics Telling Us About The Low P/S?

There's an inherent assumption that a company should underperform the industry for P/S ratios like Feiyang International Holdings Group's to be considered reasonable.

If we review the last year of revenue growth, we see the company's revenues grew exponentially. The amazing performance means it was also able to grow revenue by 272% in total over the last three years. Therefore, it's fair to say the revenue growth recently has been superb for the company.

Comparing that recent medium-term revenue trajectory with the industry's one-year growth forecast of 19% shows it's noticeably more attractive.

With this information, we find it odd that Feiyang International Holdings Group is trading at a P/S lower than the industry. Apparently some shareholders believe the recent performance has exceeded its limits and have been accepting significantly lower selling prices.

What We Can Learn From Feiyang International Holdings Group's P/S?

Feiyang International Holdings Group's recently weak share price has pulled its P/S back below other Hospitality companies. 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.

Our examination of Feiyang International Holdings Group revealed its three-year revenue trends aren't boosting its P/S anywhere near as much as we would have predicted, given they look better than current industry expectations. Potential investors that are sceptical over continued revenue performance may be preventing the P/S ratio from matching previous strong performance. At least price risks look to be very low if recent medium-term revenue trends continue, but investors seem to think future revenue could see a lot of volatility.

Plus, you should also learn about these 2 warning signs we've spotted with Feiyang International Holdings Group.

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com