Beijing Sports and Entertainment Industry Group Limited (HKG:1803) shareholders won't be pleased to see that the share price has had a very rough month, dropping 29% and undoing the prior period's positive performance. Instead of being rewarded, shareholders who have already held through the last twelve months are now sitting on a 26% share price drop.
In spite of the heavy fall in price, you could still be forgiven for feeling indifferent about Beijing Sports and Entertainment Industry Group's P/S ratio of 0.6x, since the median price-to-sales (or "P/S") ratio for the Hospitality industry in Hong Kong is also close to 0.7x. 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 Beijing Sports and Entertainment Industry Group
What Does Beijing Sports and Entertainment Industry Group's P/S Mean For Shareholders?
With revenue growth that's exceedingly strong of late, Beijing Sports and Entertainment Industry Group has been doing very well. The P/S is probably moderate because investors think this strong revenue growth might not be enough to outperform the broader industry in the near future. Those who are bullish on Beijing Sports and Entertainment Industry Group 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 Beijing Sports and Entertainment Industry Group, take a look at this free data-rich visualisation to see how the company stacks up on earnings, revenue and cash flow.What Are Revenue Growth Metrics Telling Us About The P/S?
Beijing Sports and Entertainment Industry Group's 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.
Taking a look back first, we see that the company grew revenue by an impressive 172% last year. Despite this strong recent growth, it's still struggling to catch up as its three-year revenue frustratingly shrank by 22% overall. So unfortunately, we have to acknowledge that the company has not done a great job of growing revenues over that time.
Comparing that to the industry, which is predicted to deliver 15% growth in the next 12 months, the company's downward momentum based on recent medium-term revenue results is a sobering picture.
With this in mind, we find it worrying that Beijing Sports and Entertainment Industry Group's P/S exceeds that of its industry peers. 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.
What Does Beijing Sports and Entertainment Industry Group's P/S Mean For Investors?
Following Beijing Sports and Entertainment Industry Group's share price tumble, its P/S is just clinging on to the industry median 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.
Our look at Beijing Sports and Entertainment Industry Group 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. Even though it matches the industry, we're uncomfortable with the current P/S ratio, as this dismal revenue performance is unlikely to support a more positive sentiment for long. 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.
Don't forget that there may be other risks. For instance, we've identified 3 warning signs for Beijing Sports and Entertainment Industry Group (1 is potentially serious) you should be aware of.
If these risks are making you reconsider your opinion on Beijing Sports and Entertainment Industry Group, explore our interactive list of high quality stocks to get an idea of what else is out there.
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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.