You may think that with a price-to-sales (or "P/S") ratio of 0.3x China Golden Classic Group Limited (HKG:8281) is a stock worth checking out, seeing as almost half of all the Personal Products companies in Hong Kong have P/S ratios greater than 0.8x and even P/S higher than 3x aren't out of the ordinary. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's limited.
Check out our latest analysis for China Golden Classic Group
How Has China Golden Classic Group Performed Recently?
For instance, China Golden Classic Group's receding revenue in recent times would have to be some food for thought. Perhaps the market believes the recent revenue performance isn't good enough to keep up the industry, causing the P/S ratio to suffer. 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 out of favour.
Although there are no analyst estimates available for China Golden Classic Group, 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 China Golden Classic Group?
There's an inherent assumption that a company should underperform the industry for P/S ratios like China Golden Classic Group's to be considered reasonable.
Taking a look back first, the company's revenue growth last year wasn't something to get excited about as it posted a disappointing decline of 3.5%. This means it has also seen a slide in revenue over the longer-term as revenue is down 8.3% 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.
In contrast to the company, the rest of the industry is expected to grow by 28% over the next year, which really puts the company's recent medium-term revenue decline into perspective.
With this in mind, we understand why China Golden Classic Group's P/S is lower than most of its industry peers. Nonetheless, there's no guarantee the P/S has reached a floor yet with revenue going in reverse. Even just maintaining these prices could be difficult to achieve as recent revenue trends are already weighing down the shares.
The Bottom Line On China Golden Classic Group's P/S
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.
As we suspected, our examination of China Golden Classic Group revealed its shrinking revenue over the medium-term is contributing to its low P/S, given the industry is set to grow. 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.
Having said that, be aware China Golden Classic Group is showing 4 warning signs in our investment analysis, you should know about.
If you're unsure about the strength of China Golden Classic Group's 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.