Orange Sky Golden Harvest Entertainment (Holdings) Limited (HKG:1132) shares have had a horrible month, losing 31% after a relatively good period beforehand. The drop over the last 30 days has capped off a tough year for shareholders, with the share price down 20% in that time.
Following the heavy fall in price, Orange Sky Golden Harvest Entertainment (Holdings)'s price-to-sales (or "P/S") ratio of 0.1x might make it look like a buy right now compared to the Entertainment industry in Hong Kong, where around half of the companies have P/S ratios above 1.5x and even P/S above 4x are quite common. However, the P/S might be low for a reason and it requires further investigation to determine if it's justified.
Our free stock report includes 2 warning signs investors should be aware of before investing in Orange Sky Golden Harvest Entertainment (Holdings). Read for free now.View our latest analysis for Orange Sky Golden Harvest Entertainment (Holdings)
How Has Orange Sky Golden Harvest Entertainment (Holdings) Performed Recently?
For example, consider that Orange Sky Golden Harvest Entertainment (Holdings)'s financial performance has been poor lately as its revenue has been in decline. Perhaps the market believes the recent revenue performance isn't good enough to keep up the industry, causing the P/S ratio to suffer. However, if this doesn't eventuate then existing shareholders may be feeling optimistic 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 Orange Sky Golden Harvest Entertainment (Holdings)'s earnings, revenue and cash flow.What Are Revenue Growth Metrics Telling Us About The Low P/S?
There's an inherent assumption that a company should underperform the industry for P/S ratios like Orange Sky Golden Harvest Entertainment (Holdings)'s to be considered reasonable.
In reviewing the last year of financials, we were disheartened to see the company's revenues fell to the tune of 8.2%. Still, the latest three year period has seen an excellent 43% overall rise in revenue, in spite of its unsatisfying short-term performance. Accordingly, while they would have preferred to keep the run going, shareholders would definitely welcome the medium-term rates of revenue growth.
Comparing that to the industry, which is predicted to deliver 11% growth in the next 12 months, the company's momentum is pretty similar based on recent medium-term annualised revenue results.
With this information, we find it odd that Orange Sky Golden Harvest Entertainment (Holdings) is trading at a P/S lower than the industry. It may be that most investors are not convinced the company can maintain recent growth rates.
The Key Takeaway
Orange Sky Golden Harvest Entertainment (Holdings)'s P/S has taken a dip along with its share price. It's argued the price-to-sales ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.
The fact that Orange Sky Golden Harvest Entertainment (Holdings) currently trades at a low P/S relative to the industry is unexpected considering its recent three-year growth is in line with the wider industry forecast. There could be some unobserved threats to revenue preventing the P/S ratio from matching the company's performance. revenue trends suggest that the risk of a price decline is low, investors appear to perceive a possibility of revenue volatility in the future.
Plus, you should also learn about these 2 warning signs we've spotted with Orange Sky Golden Harvest Entertainment (Holdings) (including 1 which is potentially serious).
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).
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