Markor International Home Furnishings Co., Ltd. (SHSE:600337) Looks Inexpensive After Falling 29% But Perhaps Not Attractive Enough

Markor International Home Furnishings Co., Ltd. (SHSE:600337) shareholders that were waiting for something to happen have been dealt a blow with a 29% share price drop in the last month. For any long-term shareholders, the last month ends a year to forget by locking in a 56% share price decline.

Following the heavy fall in price, it would be understandable if you think Markor International Home Furnishings is a stock with good investment prospects with a price-to-sales ratios (or "P/S") of 0.5x, considering almost half the companies in China's Consumer Durables industry have P/S ratios above 1.6x. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/S.

View our latest analysis for Markor International Home Furnishings

What Does Markor International Home Furnishings' Recent Performance Look Like?

For example, consider that Markor International Home Furnishings' 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. If you like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's out of favour.

Want the full picture on earnings, revenue and cash flow for the company? Then our free report on Markor International Home Furnishings will help you shine a light on its historical performance.

Do Revenue Forecasts Match The Low P/S Ratio?

The only time you'd be truly comfortable seeing a P/S as low as Markor International Home Furnishings' is when the company's growth is on track to lag the industry.

Retrospectively, the last year delivered a frustrating 16% decrease to the company's top line. As a result, revenue from three years ago have also fallen 27% overall. So unfortunately, we have to acknowledge that the company has not done a great job of growing revenue over that time.

In contrast to the company, the rest of the industry is expected to grow by 10% over the next year, which really puts the company's recent medium-term revenue decline into perspective.

In light of this, it's understandable that Markor International Home Furnishings' P/S would sit below the majority of other companies. However, we think shrinking revenues are unlikely to lead to a stable P/S over the longer term, which could set up shareholders for future disappointment. Even just maintaining these prices could be difficult to achieve as recent revenue trends are already weighing down the shares.

What We Can Learn From Markor International Home Furnishings' P/S?

The southerly movements of Markor International Home Furnishings' shares means its P/S is now sitting at a pretty low level. 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 examination of Markor International Home Furnishings confirms that the company's shrinking revenue over the past medium-term is a key factor in its low price-to-sales ratio, given the industry is projected to grow. At this stage investors feel the potential for an improvement in revenue isn't great enough to justify a higher P/S ratio. If recent medium-term revenue trends continue, it's hard to see the share price moving strongly in either direction in the near future under these circumstances.

You need to take note of risks, for example - Markor International Home Furnishings has 3 warning signs (and 2 which make us uncomfortable) we think you should know about.

If these risks are making you reconsider your opinion on Markor International Home Furnishings, 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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com