Volcano Spring International Holdings Limited (HKG:1715) shareholders won't be pleased to see that the share price has had a very rough month, dropping 48% and undoing the prior period's positive performance. The recent drop completes a disastrous twelve months for shareholders, who are sitting on a 72% loss during that time.
In spite of the heavy fall in price, there still wouldn't be many who think Volcano Spring International Holdings' price-to-sales (or "P/S") ratio of 0.6x is worth a mention when the median P/S in Hong Kong's Consumer Durables industry is similar at about 0.5x. 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.
View our latest analysis for Volcano Spring International Holdings
How Has Volcano Spring International Holdings Performed Recently?
For example, consider that Volcano Spring International Holdings' financial performance has been poor lately as its revenue has been in decline. It might be that many expect the company to put the disappointing revenue performance behind them over the coming period, which has kept the P/S from falling. If not, then existing shareholders may be a little nervous about the viability of the share price.
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 Volcano Spring International Holdings' earnings, revenue and cash flow.Is There Some Revenue Growth Forecasted For Volcano Spring International Holdings?
Volcano Spring International 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.
Retrospectively, the last year delivered a frustrating 8.6% decrease to the company's top line. As a result, revenue from three years ago have also fallen 45% overall. Accordingly, shareholders would have felt downbeat about the medium-term rates of revenue growth.
Weighing that medium-term revenue trajectory against the broader industry's one-year forecast for expansion of 12% shows it's an unpleasant look.
With this information, we find it concerning that Volcano Spring International Holdings is trading at a fairly similar P/S compared to the industry. Apparently many investors in the company are way less bearish than recent times would indicate and aren't willing to let go of their stock right now. 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.
The Key Takeaway
Volcano Spring International Holdings' plummeting stock price has brought its P/S back to a similar region as the rest of the industry. Typically, we'd caution against reading too much into price-to-sales ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.
Our look at Volcano Spring International 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 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.
There are also other vital risk factors to consider and we've discovered 5 warning signs for Volcano Spring International Holdings (3 are concerning!) that you should be aware of before investing here.
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.
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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.