• Markets
• News
• Learn

Goodbaby International Holdings Limited (HKG:1086) shareholders have had their patience rewarded with a 26% share price jump in the last month. The last 30 days bring the annual gain to a very sharp 85%.

Although its price has surged higher, there still wouldn't be many who think Goodbaby International Holdings' price-to-sales (or "P/S") ratio of 0.2x is worth a mention when the median P/S in Hong Kong's Leisure industry is similar at about 0.6x. 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.

Check out our latest analysis for Goodbaby International Holdings

What Does Goodbaby International Holdings' Recent Performance Look Like?

With revenue growth that's inferior to most other companies of late, Goodbaby International Holdings has been relatively sluggish. Perhaps the market is expecting future revenue performance to lift, which has kept the P/S from declining. You'd really hope so, otherwise you're paying a relatively elevated price for a company with this sort of growth profile.

Is There Some Revenue Growth Forecasted For Goodbaby International Holdings?

In order to justify its P/S ratio, Goodbaby International Holdings would need to produce growth that's similar to the industry.

Retrospectively, the last year delivered a decent 5.3% gain to the company's revenues. Ultimately though, it couldn't turn around the poor performance of the prior period, with revenue shrinking 11% in total over the last three years. So unfortunately, we have to acknowledge that the company has not done a great job of growing revenue over that time.

Turning to the outlook, the next year should generate growth of 11% as estimated by the only analyst watching the company. With the industry predicted to deliver 10% growth , the company is positioned for a comparable revenue result.

With this in mind, it makes sense that Goodbaby International Holdings' P/S is closely matching its industry peers. Apparently shareholders are comfortable to simply hold on while the company is keeping a low profile.

The Final Word

Goodbaby International Holdings appears to be back in favour with a solid price jump bringing its P/S back in line with other companies in the industry Using the price-to-sales ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

Our look at Goodbaby International Holdings' revenue growth estimates show that its P/S is about what we expect, as both metrics follow closely with the industry averages. Right now shareholders are comfortable with the P/S as they are quite confident future revenue won't throw up any surprises. Unless these conditions change, they will continue to support the share price at these levels.

Before you take the next step, you should know about the 2 warning signs for Goodbaby International Holdings (1 makes us a bit uncomfortable!) that we have uncovered.

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.