Huasi Holding Company Limited (SZSE:002494) shareholders are no doubt pleased to see that the share price has bounced 39% in the last month, although it is still struggling to make up recently lost ground. Not all shareholders will be feeling jubilant, since the share price is still down a very disappointing 16% in the last twelve months.
After such a large jump in price, when almost half of the companies in China's Luxury industry have price-to-sales ratios (or "P/S") below 1.7x, you may consider Huasi Holding as a stock not worth researching with its 4.4x 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 so lofty.
SZSE:002494 Price to Sales Ratio vs Industry March 18th 2024
How Has Huasi Holding Performed Recently?
For example, consider that Huasi Holding's financial performance has been poor lately as its revenue has been in decline. Perhaps the market believes the company can do enough to outperform the rest of the industry in the near future, which is keeping the P/S ratio high. If not, then existing shareholders may be quite nervous about the viability of the share price.
Although there are no analyst estimates available for Huasi Holding, take a look at this free data-rich visualisation to see how the company stacks up on earnings, revenue and cash flow.
Is There Enough Revenue Growth Forecasted For Huasi Holding?
The only time you'd be truly comfortable seeing a P/S as steep as Huasi Holding's is when the company's growth is on track to outshine the industry decidedly.
Taking a look back first, the company's revenue growth last year wasn't something to get excited about as it posted a disappointing decline of 8.2%. As a result, revenue from three years ago have also fallen 3.1% 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 19% shows it's an unpleasant look.
With this in mind, we find it worrying that Huasi Holding'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. There's a very good chance existing shareholders are setting themselves up for future disappointment if the P/S falls to levels more in line with the recent negative growth rates.
The Bottom Line On Huasi Holding's P/S
Shares in Huasi Holding have seen a strong upwards swing lately, which has really helped boost its P/S figure. While the price-to-sales ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of revenue expectations.
We've established that Huasi Holding currently trades on a much higher than expected P/S since its recent revenues have been in decline over the medium-term. Right now we aren't comfortable with the high P/S as this revenue performance is highly unlikely to support such positive sentiment for long. Unless the the circumstances surrounding the recent medium-term improve, it wouldn't be wrong to expect a a difficult period ahead for the company's shareholders.
Before you settle on your opinion, we've discovered 2 warning signs for Huasi Holding that you should be aware of.
If these risks are making you reconsider your opinion on Huasi Holding, explore our interactive list of high quality stocks to get an idea of what else is out there.
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