Beijing Sports and Entertainment Industry Group Limited's (HKG:1803) 25% Dip Still Leaving Some Shareholders Feeling Restless Over Its P/SRatio

The Beijing Sports and Entertainment Industry Group Limited (HKG:1803) share price has fared very poorly over the last month, falling by a substantial 25%. To make matters worse, the recent drop has wiped out a year's worth of gains with the share price now back where it started a year ago.

In spite of the heavy fall in price, it's still not a stretch to say that Beijing Sports and Entertainment Industry Group's price-to-sales (or "P/S") ratio of 0.6x right now seems quite "middle-of-the-road" compared to the Hospitality industry in Hong Kong, where the median P/S ratio is around 0.8x. 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.

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Check out our latest analysis for Beijing Sports and Entertainment Industry Group

What Does Beijing Sports and Entertainment Industry Group's P/S Mean For Shareholders?

Beijing Sports and Entertainment Industry Group certainly has been doing a great job lately as it's been growing its revenue at a really rapid pace. It might be that many expect the strong revenue performance to wane, which has kept the share price, and thus the P/S ratio, from rising. If that doesn't eventuate, then existing shareholders have reason to be feeling optimistic about the future direction of the share price.

Want the full picture on earnings, revenue and cash flow for the company? Then our free report on Beijing Sports and Entertainment Industry Group will help you shine a light on its historical performance.

Is There Some Revenue Growth Forecasted For Beijing Sports and Entertainment Industry Group?

There's an inherent assumption that a company should be matching the industry for P/S ratios like Beijing Sports and Entertainment Industry Group's to be considered reasonable.

If we review the last year of revenue growth, the company posted a terrific increase of 157%. As a result, it also grew revenue by 21% in total over the last three years. Therefore, it's fair to say the revenue growth recently has been respectable for the company.

Comparing the recent medium-term revenue trends against the industry's one-year growth forecast of 13% shows it's noticeably less attractive.

With this in mind, we find it intriguing that Beijing Sports and Entertainment Industry Group's P/S is comparable to that of its industry peers. It seems most investors are ignoring the fairly limited recent growth rates and are willing to pay up for exposure to the stock. Maintaining these prices will be difficult to achieve as a continuation of recent revenue trends is likely to weigh down the shares eventually.

The Key Takeaway

Following Beijing Sports and Entertainment Industry Group'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.

Our examination of Beijing Sports and Entertainment Industry Group revealed its poor three-year revenue trends aren't resulting in a lower P/S as per our expectations, given they look worse than current industry outlook. Right now we are uncomfortable with the P/S as this revenue performance isn't likely to support a more positive sentiment for long. If recent medium-term revenue trends continue, the probability of a share price decline will become quite substantial, placing shareholders at risk.

There are also other vital risk factors to consider and we've discovered 3 warning signs for Beijing Sports and Entertainment Industry Group (1 is a bit unpleasant!) that you should be aware of before investing here.

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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.