Trendzon Holdings Group Limited (HKG:1865) Might Not Be As Mispriced As It Looks After Plunging 28%

Unfortunately for some shareholders, the Trendzon Holdings Group Limited (HKG:1865) share price has dived 28% in the last thirty days, prolonging recent pain. For any long-term shareholders, the last month ends a year to forget by locking in a 93% share price decline.

In spite of the heavy fall in price, you could still be forgiven for feeling indifferent about Trendzon Holdings Group's P/S ratio of 0.1x, since the median price-to-sales (or "P/S") ratio for the Construction industry in Hong Kong is also close to 0.3x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/S.

View our latest analysis for Trendzon Holdings Group

How Trendzon Holdings Group Has Been Performing

The revenue growth achieved at Trendzon Holdings Group over the last year would be more than acceptable for most companies. Perhaps the market is expecting future revenue performance to only keep up with the broader industry, which has keeping the P/S in line with expectations. If that doesn't eventuate, then existing shareholders probably aren't too pessimistic about the future direction of the share price.

Want the full picture on earnings, revenue and cash flow for the company? Then our free report on Trendzon Holdings Group 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, Trendzon Holdings Group would need to produce growth that's similar to the industry.

If we review the last year of revenue growth, the company posted a terrific increase of 28%. Pleasingly, revenue has also lifted 209% in aggregate from three years ago, thanks to the last 12 months of growth. Therefore, it's fair to say the revenue growth recently has been superb for the company.

Comparing that recent medium-term revenue trajectory with the industry's one-year growth forecast of 13% shows it's noticeably more attractive.

With this information, we find it interesting that Trendzon Holdings Group is trading at a fairly similar P/S compared to the industry. Apparently some shareholders believe the recent performance is at its limits and have been accepting lower selling prices.

The Key Takeaway

Trendzon Holdings Group's plummeting stock price has brought its P/S back to a similar region as the rest of the industry. 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.

We've established that Trendzon Holdings Group currently trades on a lower than expected P/S since its recent three-year growth is higher than the wider industry forecast. When we see strong revenue with faster-than-industry growth, we can only assume potential risks are what might be placing pressure on the P/S ratio. It appears some are indeed anticipating revenue instability, because the persistence of these recent medium-term conditions would normally provide a boost to the share price.

Don't forget that there may be other risks. For instance, we've identified 4 warning signs for Trendzon Holdings Group (2 can't be ignored) 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.