Kwong Luen Engineering Holdings Limited (HKG:1413) Shares Slammed 30% But Getting In Cheap Might Be Difficult Regardless

Kwong Luen Engineering Holdings Limited (HKG:1413) shareholders that were waiting for something to happen have been dealt a blow with a 30% share price drop in the last month. The recent drop completes a disastrous twelve months for shareholders, who are sitting on a 55% loss during that time.

Even after such a large drop in price, there still wouldn't be many who think Kwong Luen Engineering Holdings' price-to-sales (or "P/S") ratio of 0.3x is worth a mention when it essentially matches the median P/S in Hong Kong's Construction industry. 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 Kwong Luen Engineering Holdings

How Has Kwong Luen Engineering Holdings Performed Recently?

Kwong Luen Engineering Holdings certainly has been doing a great job lately as it's been growing its revenue at a really rapid pace. Perhaps the market is expecting future revenue performance to taper off, which has kept the P/S from rising. If that doesn't eventuate, then existing shareholders have reason to 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 Kwong Luen Engineering Holdings' earnings, revenue and cash flow.

Is There Some Revenue Growth Forecasted For Kwong Luen Engineering Holdings?

The only time you'd be comfortable seeing a P/S like Kwong Luen Engineering Holdings' is when the company's growth is tracking the industry closely.

Retrospectively, the last year delivered an exceptional 83% gain to the company's top line. Revenue has also lifted 28% in aggregate from three years ago, mostly thanks to the last 12 months of growth. So we can start by confirming that the company has actually done a good job of growing revenue over that time.

It's interesting to note that the rest of the industry is similarly expected to grow by 10% over the next year, which is fairly even with the company's recent medium-term annualised growth rates.

With this in consideration, it's clear to see why Kwong Luen Engineering Holdings' P/S matches up closely to its industry peers. Apparently shareholders are comfortable to simply hold on assuming the company will continue keeping a low profile.

What Does Kwong Luen Engineering Holdings' P/S Mean For Investors?

Following Kwong Luen Engineering Holdings' share price tumble, its P/S is just clinging on to the industry median P/S. Generally, our preference is to limit the use of the price-to-sales ratio to establishing what the market thinks about the overall health of a company.

As we've seen, Kwong Luen Engineering Holdings' three-year revenue trends seem to be contributing to its P/S, given they look similar to current industry expectations. 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 should always think about risks. Case in point, we've spotted 5 warning signs for Kwong Luen Engineering Holdings you should be aware of, and 2 of them are a bit unpleasant.

If you're unsure about the strength of Kwong Luen Engineering Holdings' 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.