Star Shine Holdings Group Limited (HKG:1440) shares have retraced a considerable 27% in the last month, reversing a fair amount of their solid recent performance. Still, a bad month hasn't completely ruined the past year with the stock gaining 72%, which is great even in a bull market.

Even after such a large drop in price, you could still be forgiven for thinking Star Shine Holdings Group is a stock to steer clear of with a price-to-sales ratios (or "P/S") of 19.9x, considering almost half the companies in Hong Kong's Luxury industry have P/S ratios below 0.6x. However, the P/S might be quite high for a reason and it requires further investigation to determine if it's justified.

What Does Star Shine Holdings Group's P/S Mean For Shareholders?

For instance, Star Shine Holdings Group's receding revenue in recent times would have to be some food for thought. It might be that many expect the company to still outplay most other companies over the coming period, which has kept the P/S from collapsing. If not, then existing shareholders may be quite nervous about the viability of the share price.

How Is Star Shine Holdings Group's Revenue Growth Trending?

Star Shine Holdings Group's P/S ratio would be typical for a company that's expected to deliver very strong growth, and importantly, perform much better than the industry.

Retrospectively, the last year delivered a frustrating 38% decrease to the company's top line. As a result, revenue from three years ago have also fallen 47% overall. 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 12% shows it's an unpleasant look.

With this in mind, we find it worrying that Star Shine Holdings Group's P/S exceeds that of its industry peers. Apparently many investors in the company are way more bullish than recent times would indicate and aren't willing to let go of their stock at any price. Only the boldest would assume these prices are sustainable as a continuation of recent revenue trends is likely to weigh heavily on the share price eventually.

The Final Word

Even after such a strong price drop, Star Shine Holdings Group's P/S still exceeds the industry median significantly. 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.

Our examination of Star Shine Holdings Group revealed its shrinking revenue over the medium-term isn't resulting in a P/S as low as we expected, given the industry is set to grow. With a revenue decline on investors' minds, the likelihood of a souring sentiment is quite high which could send the P/S back in line with what we'd expect. If recent medium-term revenue trends continue, it will place shareholders' investments at significant risk and potential investors in danger of paying an excessive premium.

Don't forget that there may be other risks. For instance, we've identified 3 warning signs for Star Shine Holdings Group (2 are a bit concerning) you should be aware of.

If these risks are making you reconsider your opinion on Star Shine Holdings Group, explore our interactive list of high quality stocks to get an idea of what else is out there.

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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.