Hanvey Group Holdings Limited's (HKG:8219) Shares May Have Run Too Fast Too Soon

There wouldn't be many who think Hanvey Group Holdings Limited's (HKG:8219) price-to-sales (or "P/S") ratio of 0.3x is worth a mention when the median P/S for the Luxury industry in Hong Kong is similar at about 0.7x. 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 Hanvey Group Holdings

How Hanvey Group Holdings Has Been Performing

The revenue growth achieved at Hanvey Group Holdings over the last year would be more than acceptable for most companies. One possibility is that the P/S is moderate because investors think this respectable revenue growth might not be enough to outperform the broader industry in the near future. 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.

We don't have analyst forecasts, but you can see how recent trends are setting up the company for the future by checking out our free report on Hanvey Group Holdings' earnings, revenue and cash flow.

Is There Some Revenue Growth Forecasted For Hanvey Group Holdings?

There's an inherent assumption that a company should be matching the industry for P/S ratios like Hanvey Group Holdings' to be considered reasonable.

Taking a look back first, we see that the company grew revenue by an impressive 28% last year. Despite this strong recent growth, it's still struggling to catch up as its three-year revenue frustratingly shrank by 42% overall. So unfortunately, we have to acknowledge that the company has not done a great job of growing revenues over that time.

Comparing that to the industry, which is predicted to deliver 18% growth in the next 12 months, the company's downward momentum based on recent medium-term revenue results is a sobering picture.

In light of this, it's somewhat alarming that Hanvey Group Holdings' P/S sits in line with the majority of other companies. It seems most investors are ignoring the recent poor growth rate and are hoping for a turnaround in the company's business prospects. There's a 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.

What We Can Learn From Hanvey Group Holdings' P/S?

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.

Our look at Hanvey Group Holdings revealed its shrinking revenues over the medium-term haven't impacted the P/S as much as we anticipated, given the industry is set to grow. When we see revenue heading backwards in the context of growing industry forecasts, it'd make sense to expect a possible share price decline on the horizon, sending the moderate P/S lower. Unless the recent medium-term conditions improve markedly, investors will have a hard time accepting the share price as fair value.

It is also worth noting that we have found 2 warning signs for Hanvey Group Holdings that you need to take into consideration.

If you're unsure about the strength of Hanvey Group Holdings' business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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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.