To the annoyance of some shareholders, Viva Goods Company Limited (HKG:933) shares are down a considerable 28% in the last month, which continues a horrid run for the company. For any long-term shareholders, the last month ends a year to forget by locking in a 50% share price decline.
In spite of the heavy fall in price, there still wouldn't be many who think Viva Goods' price-to-sales (or "P/S") ratio of 0.3x is worth a mention when the median P/S in Hong Kong's Luxury industry is similar at about 0.6x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/S.
Check out our latest analysis for Viva Goods
How Has Viva Goods Performed Recently?
For instance, Viva Goods' receding revenue in recent times would have to be some food for thought. Perhaps investors believe the recent revenue performance is enough to keep in line with the industry, which is keeping the P/S from dropping off. If you like the company, you'd at least be hoping this is the case so that you could potentially pick up some stock while it's not quite in favour.
Want the full picture on earnings, revenue and cash flow for the company? Then our free report on Viva Goods will help you shine a light on its historical performance.Do Revenue Forecasts Match The P/S Ratio?
In order to justify its P/S ratio, Viva Goods would need to produce growth that's similar to the industry.
Retrospectively, the last year delivered a frustrating 7.1% decrease to the company's top line. The latest three year period has seen an incredible overall rise in revenue, a stark contrast to the last 12 months. Therefore, it's fair to say the revenue growth recently has been superb for the company, but investors will want to ask why it is now in decline.
Comparing that to the industry, which is only predicted to deliver 29% growth in the next 12 months, the company's momentum is stronger based on recent medium-term annualised revenue results.
In light of this, it's curious that Viva Goods' P/S sits in line with the majority of other companies. Apparently some shareholders believe the recent performance is at its limits and have been accepting lower selling prices.
The Bottom Line On Viva Goods' P/S
Following Viva Goods' 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.
We didn't quite envision Viva Goods' P/S sitting in line with the wider industry, considering the revenue growth over the last three-year is higher than the current industry outlook. It'd be fair to assume that potential risks the company faces could be the contributing factor to the lower than expected P/S. While recent revenue trends over the past medium-term suggest that the risk of a price decline is low, investors appear to see the likelihood of revenue fluctuations in the future.
You should always think about risks. Case in point, we've spotted 1 warning sign for Viva Goods you should be aware of.
If you're unsure about the strength of Viva Goods' 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.