To the annoyance of some shareholders, Lisi Group (Holdings) Limited (HKG:526) shares are down a considerable 32% in the last month, which continues a horrid run for the company. Looking back over the past twelve months the stock has been a solid performer regardless, with a gain of 18%.
Although its price has dipped substantially, you could still be forgiven for feeling indifferent about Lisi Group (Holdings)'s P/S ratio of 0.3x, since the median price-to-sales (or "P/S") ratio for the Consumer Durables industry in Hong Kong is also close to 0.5x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/S.
See our latest analysis for Lisi Group (Holdings)
What Does Lisi Group (Holdings)'s Recent Performance Look Like?
Revenue has risen firmly for Lisi Group (Holdings) recently, which is pleasing to see. Perhaps the market is expecting future revenue performance to only keep up with the broader industry, which has keeping the P/S in line with expectations. If that doesn't eventuate, then existing shareholders probably aren't too pessimistic about the future direction of the share price.
We don't have analyst forecasts, but you can see how recent trends are setting up the company for the future by checking out our free report on Lisi Group (Holdings)'s earnings, revenue and cash flow.How Is Lisi Group (Holdings)'s Revenue Growth Trending?
In order to justify its P/S ratio, Lisi Group (Holdings) would need to produce growth that's similar to the industry.
Taking a look back first, we see that the company managed to grow revenues by a handy 11% last year. This was backed up an excellent period prior to see revenue up by 37% in total over the last three years. So we can start by confirming that the company has done a great job of growing revenues over that time.
Comparing that to the industry, which is predicted to deliver 10% growth in the next 12 months, the company's momentum is pretty similar based on recent medium-term annualised revenue results.
In light of this, it's understandable that Lisi Group (Holdings)'s P/S sits in line with the majority of other companies. It seems most investors are expecting to see average growth rates continue into the future and are only willing to pay a moderate amount for the stock.
What We Can Learn From Lisi Group (Holdings)'s P/S?
Following Lisi Group (Holdings)'s share price tumble, its P/S is just clinging on to the industry median P/S. While the price-to-sales ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of revenue expectations.
It appears to us that Lisi Group (Holdings) maintains its moderate P/S off the back of its recent three-year growth being in line with the wider industry forecast. Currently, with a past revenue trend that aligns closely wit the industry outlook, shareholders are confident the company's future revenue outlook won't contain any major surprises. Given the current circumstances, it seems improbable that the share price will experience any significant movement in either direction in the near future if recent medium-term revenue trends persist.
You always need to take note of risks, for example - Lisi Group (Holdings) has 3 warning signs we think you should be aware of.
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.