Some Confidence Is Lacking In Hao Tian International Construction Investment Group Limited's (HKG:1341) P/S

When close to half the companies in the Trade Distributors industry in Hong Kong have price-to-sales ratios (or "P/S") below 0.6x, you may consider Hao Tian International Construction Investment Group Limited (HKG:1341) as a stock to avoid entirely with its 33.2x P/S ratio. However, the P/S might be quite high for a reason and it requires further investigation to determine if it's justified.

See our latest analysis for Hao Tian International Construction Investment Group

What Does Hao Tian International Construction Investment Group's Recent Performance Look Like?

As an illustration, revenue has deteriorated at Hao Tian International Construction Investment Group over the last year, which is not ideal at all. One possibility is that the P/S is high because investors think the company will still do enough to outperform the broader industry in the near future. However, if this isn't the case, investors might get caught out paying too much for the stock.

Want the full picture on earnings, revenue and cash flow for the company? Then our free report on Hao Tian International Construction Investment Group will help you shine a light on its historical performance.

Is There Enough Revenue Growth Forecasted For Hao Tian International Construction Investment Group?

There's an inherent assumption that a company should far outperform the industry for P/S ratios like Hao Tian International Construction Investment Group's to be considered reasonable.

Retrospectively, the last year delivered a frustrating 9.5% decrease to the company's top line. The last three years don't look nice either as the company has shrunk revenue by 12% in aggregate. So unfortunately, we have to acknowledge that the company has not done a great job of growing revenue over that time.

Comparing that to the industry, which is predicted to deliver 23% growth in the next 12 months, the company's downward momentum based on recent medium-term revenue results is a sobering picture.

With this information, we find it concerning that Hao Tian International Construction Investment Group is trading at a P/S higher than the industry. Apparently many investors in the company are way more bullish than recent times would indicate and aren't willing to let go of their stock at any price. Only the boldest would assume these prices are sustainable as a continuation of recent revenue trends is likely to weigh heavily on the share price eventually.

What Does Hao Tian International Construction Investment Group's P/S Mean For Investors?

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.

We've established that Hao Tian International Construction Investment Group currently trades on a much higher than expected P/S since its recent revenues have been in decline over the medium-term. With a revenue decline on investors' minds, the likelihood of a souring sentiment is quite high which could send the P/S back in line with what we'd expect. Unless the recent medium-term conditions improve markedly, investors will have a hard time accepting the share price as fair value.

There are also other vital risk factors to consider before investing and we've discovered 1 warning sign for Hao Tian International Construction Investment Group that you should be aware of.

It's important to make sure you look for a great company, not just the first idea you come across. So if growing profitability aligns with your idea of a great company, take a peek at this free list of interesting companies with strong recent earnings growth (and a low P/E).

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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.