Media Chinese International Limited (HKG:685) Held Back By Insufficient Growth Even After Shares Climb 33%

The Media Chinese International Limited (HKG:685) share price has done very well over the last month, posting an excellent gain of 33%. The last 30 days bring the annual gain to a very sharp 32%.

In spite of the firm bounce in price, given about half the companies operating in Hong Kong's Media industry have price-to-sales ratios (or "P/S") above 1.2x, you may still consider Media Chinese International as an attractive investment with its 0.4x 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 limited.

We've found 21 US stocks that are forecast to pay a dividend yield of over 6% next year. See the full list for free.

See our latest analysis for Media Chinese International

What Does Media Chinese International's Recent Performance Look Like?

While the industry has experienced revenue growth lately, Media Chinese International's revenue has gone into reverse gear, which is not great. It seems that many are expecting the poor revenue performance to persist, which has repressed the P/S ratio. If you still like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's out of favour.

Keen to find out how analysts think Media Chinese International's future stacks up against the industry? In that case, our free report is a great place to start.

Do Revenue Forecasts Match The Low P/S Ratio?

Media Chinese International's P/S ratio would be typical for a company that's only expected to deliver limited growth, and importantly, perform worse than the industry.

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 1.2%. That put a dampener on the good run it was having over the longer-term as its three-year revenue growth is still a noteworthy 18% in total. Accordingly, while they would have preferred to keep the run going, shareholders would be roughly satisfied with the medium-term rates of revenue growth.

Shifting to the future, estimates from the only analyst covering the company suggest revenue should grow by 8.1% over the next year. Meanwhile, the rest of the industry is forecast to expand by 17%, which is noticeably more attractive.

With this in consideration, its clear as to why Media Chinese International's P/S is falling short industry peers. It seems most investors are expecting to see limited future growth and are only willing to pay a reduced amount for the stock.

The Bottom Line On Media Chinese International's P/S

Despite Media Chinese International's share price climbing recently, its P/S still lags most other companies. 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 Media Chinese International maintains its low P/S on the weakness of its forecast growth being lower than the wider industry, as expected. Right now shareholders are accepting the low P/S as they concede future revenue probably won't provide any pleasant surprises. Unless these conditions improve, they will continue to form a barrier for the share price around these levels.

And what about other risks? Every company has them, and we've spotted 3 warning signs for Media Chinese International (of which 1 is potentially serious!) you should know about.

Of course, profitable companies with a history of great earnings growth are generally safer bets. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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

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.