Asia Cement (China) Holdings Corporation (HKG:743) shareholders would be excited to see that the share price has had a great month, posting a 32% gain and recovering from prior weakness. Not all shareholders will be feeling jubilant, since the share price is still down a very disappointing 28% in the last twelve months.
Even after such a large jump in price, you could still be forgiven for feeling indifferent about Asia Cement (China) Holdings' P/S ratio of 0.5x, since the median price-to-sales (or "P/S") ratio for the Basic Materials industry in Hong Kong is also close to 0.4x. While this might not raise any eyebrows, if the P/S ratio is not justified investors could be missing out on a potential opportunity or ignoring looming disappointment.
Check out our latest analysis for Asia Cement (China) Holdings
What Does Asia Cement (China) Holdings' Recent Performance Look Like?
Asia Cement (China) Holdings has been struggling lately as its revenue has declined faster than most other companies. Perhaps the market is expecting future revenue performance to begin matching the rest of the industry, which has kept the P/S from declining. So while you could say the stock is cheap, investors will be looking for improvement before they see it as good value. Or at the very least, you'd be hoping it doesn't keep underperforming if your plan is to pick up some stock while it's not in favour.
If you'd like to see what analysts are forecasting going forward, you should check out our free report on Asia Cement (China) Holdings.Is There Some Revenue Growth Forecasted For Asia Cement (China) Holdings?
Asia Cement (China) Holdings' P/S ratio would be typical for a company that's only expected to deliver moderate growth, and importantly, perform in line with the industry.
In reviewing the last year of financials, we were disheartened to see the company's revenues fell to the tune of 28%. The last three years don't look nice either as the company has shrunk revenue by 43% in aggregate. Therefore, it's fair to say the revenue growth recently has been undesirable for the company.
Shifting to the future, estimates from the sole analyst covering the company suggest revenue growth is heading into negative territory, declining 6.7% over the next year. With the industry predicted to deliver 6.5% growth, that's a disappointing outcome.
In light of this, it's somewhat alarming that Asia Cement (China) Holdings' P/S sits in line with the majority of other companies. Apparently many investors in the company reject the analyst cohort's pessimism and aren't willing to let go of their stock right now. Only the boldest would assume these prices are sustainable as these declining revenues are likely to weigh on the share price eventually.
The Final Word
Its shares have lifted substantially and now Asia Cement (China) Holdings' P/S is back within range of the industry median. 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.
While Asia Cement (China) Holdings' P/S isn't anything out of the ordinary for companies in the industry, we didn't expect it given forecasts of revenue decline. With this in mind, we don't feel the current P/S is justified as declining revenues are unlikely to support a more positive sentiment for long. If the declining revenues were to materialize in the form of a declining share price, shareholders will be feeling the pinch.
And what about other risks? Every company has them, and we've spotted 1 warning sign for Asia Cement (China) Holdings you should know about.
If these risks are making you reconsider your opinion on Asia Cement (China) Holdings, 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.