With a price-to-sales (or "P/S") ratio of 1.3x Cinda International Holdings Limited (HKG:111) may be sending very bullish signals at the moment, given that almost half of all the Capital Markets companies in Hong Kong have P/S ratios greater than 3.4x and even P/S higher than 10x are not unusual. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's so limited.
See our latest analysis for Cinda International Holdings
How Has Cinda International Holdings Performed Recently?
Recent times have been quite advantageous for Cinda International Holdings as its revenue has been rising very briskly. Perhaps the market is expecting future revenue performance to dwindle, which has kept the P/S suppressed. If that doesn't eventuate, then existing shareholders have reason to be quite optimistic about the future direction of the share price.
Want the full picture on earnings, revenue and cash flow for the company? Then our free report on Cinda International Holdings will help you shine a light on its historical performance.What Are Revenue Growth Metrics Telling Us About The Low P/S?
There's an inherent assumption that a company should far underperform the industry for P/S ratios like Cinda International Holdings' to be considered reasonable.
Retrospectively, the last year delivered an exceptional 30% gain to the company's top line. Still, revenue has fallen 32% in total from three years ago, which is quite disappointing. Therefore, it's fair to say the revenue growth recently has been undesirable for the company.
In contrast to the company, the rest of the industry is expected to grow by 25% over the next year, which really puts the company's recent medium-term revenue decline into perspective.
With this information, we are not surprised that Cinda International Holdings is trading at a P/S lower than the industry. Nonetheless, there's no guarantee the P/S has reached a floor yet with revenue going in reverse. There's potential for the P/S to fall to even lower levels if the company doesn't improve its top-line growth.
The Final Word
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.
As we suspected, our examination of Cinda International Holdings 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.
Plus, you should also learn about these 3 warning signs we've spotted with Cinda International Holdings (including 2 which are concerning).
If strong companies turning a profit tickle your fancy, then you'll want to check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).
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.