When close to half the companies operating in the Beverage industry in Hong Kong have price-to-sales ratios (or "P/S") above 1.9x, you may consider Hung Fook Tong Group Holdings Limited (HKG:1446) as an attractive investment with its 0.2x P/S ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/S.
View our latest analysis for Hung Fook Tong Group Holdings
What Does Hung Fook Tong Group Holdings' P/S Mean For Shareholders?
For instance, Hung Fook Tong Group Holdings' receding revenue in recent times would have to be some food for thought. It might be that many expect the disappointing revenue performance to continue or accelerate, which has repressed the P/S. Those who are bullish on Hung Fook Tong Group Holdings will be hoping that this isn't the case so that they can pick up the stock at a lower valuation.
Although there are no analyst estimates available for Hung Fook Tong Group Holdings, take a look at this free data-rich visualisation to see how the company stacks up on earnings, revenue and cash flow.Is There Any Revenue Growth Forecasted For Hung Fook Tong Group Holdings?
The only time you'd be truly comfortable seeing a P/S as low as Hung Fook Tong Group Holdings' is when the company's growth is on track to lag the industry.
Retrospectively, the last year delivered a frustrating 4.3% decrease to the company's top line. As a result, revenue from three years ago have also fallen 7.7% overall. So unfortunately, we have to acknowledge that the company has not done a great job of growing revenue over that time.
In contrast to the company, the rest of the industry is expected to grow by 9.3% over the next year, which really puts the company's recent medium-term revenue decline into perspective.
In light of this, it's understandable that Hung Fook Tong Group Holdings' P/S would sit below the majority of other companies. However, we think shrinking revenues are unlikely to lead to a stable P/S over the longer term, which could set up shareholders for future disappointment. There's potential for the P/S to fall to even lower levels if the company doesn't improve its top-line growth.
The Bottom Line On Hung Fook Tong 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.
It's no surprise that Hung Fook Tong Group Holdings maintains its low P/S off the back of its sliding revenue over the medium-term. Right now shareholders are accepting the low P/S as they concede future revenue probably won't provide any pleasant surprises either. Unless the recent medium-term conditions improve, they will continue to form a barrier for the share price around these levels.
Plus, you should also learn about these 2 warning signs we've spotted with Hung Fook Tong Group Holdings (including 1 which can't be ignored).
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.