China TianYF Holdings Group Limited (HKG:8196) shares have had a horrible month, losing 44% after a relatively good period beforehand. For any long-term shareholders, the last month ends a year to forget by locking in a 80% share price decline.
Even after such a large drop in price, it's still not a stretch to say that China TianYF Holdings Group's price-to-sales (or "P/S") ratio of 0.3x right now seems quite "middle-of-the-road" compared to the Trade Distributors industry in Hong Kong, where the median P/S ratio is around 0.6x. 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.
View our latest analysis for China TianYF Holdings Group
What Does China TianYF Holdings Group's P/S Mean For Shareholders?
The revenue growth achieved at China TianYF Holdings Group over the last year would be more than acceptable for most companies. It might be that many expect the respectable revenue performance to wane, 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.
How Is China TianYF Holdings Group's Revenue Growth Trending?
There's an inherent assumption that a company should be matching the industry for P/S ratios like China TianYF Holdings Group's to be considered reasonable.
If we review the last year of revenue growth, the company posted a terrific increase of 21%. Pleasingly, revenue has also lifted 67% in aggregate from three years ago, thanks to the last 12 months of growth. Accordingly, shareholders would have definitely welcomed those medium-term rates of revenue growth.
Comparing that to the industry, which is only predicted to deliver 3.4% growth in the next 12 months, the company's momentum is stronger based on recent medium-term annualised revenue results.
With this information, we find it interesting that China TianYF Holdings Group is trading at a fairly similar P/S compared to the industry. It may be that most investors are not convinced the company can maintain its recent growth rates.
What Does China TianYF Holdings Group's P/S Mean For Investors?
With its share price dropping off a cliff, the P/S for China TianYF Holdings Group looks to be in line with the rest of the Trade Distributors industry. 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.
To our surprise, China TianYF Holdings Group 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. There could be some unobserved threats to revenue preventing the P/S ratio from matching this positive performance. While recent revenue trends over the past medium-term suggest that the risk of a price decline is low, investors appear to see the likelihood of revenue fluctuations in the future.
It is also worth noting that we have found 3 warning signs for China TianYF Holdings Group (2 are concerning!) that you need to take into consideration.
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.
