Changsha Broad Homes Industrial Group Co., Ltd.'s (HKG:2163) 48% Price Boost Is Out Of Tune With Revenues

Changsha Broad Homes Industrial Group Co., Ltd. (HKG:2163) shareholders are no doubt pleased to see that the share price has bounced 48% in the last month, although it is still struggling to make up recently lost ground. But the last month did very little to improve the 56% share price decline over the last year.

Even after such a large jump in price, it's still not a stretch to say that Changsha Broad Homes Industrial Group's price-to-sales (or "P/S") ratio of 0.2x right now seems quite "middle-of-the-road" compared to the Construction industry in Hong Kong, where the median P/S ratio is around 0.3x. While this might not raise any eyebrows, if the P/S ratio is not justified investors could be missing out on a potential opportunity or ignoring looming disappointment.

See our latest analysis for Changsha Broad Homes Industrial Group

How Changsha Broad Homes Industrial Group Has Been Performing

For instance, Changsha Broad Homes Industrial Group's receding revenue in recent times would have to be some food for thought. It might be that many expect the company to put the disappointing revenue performance behind them over the coming period, which has kept the P/S from falling. If not, then existing shareholders may be a little nervous about the viability 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 Changsha Broad Homes Industrial Group's earnings, revenue and cash flow.

How Is Changsha Broad Homes Industrial Group's Revenue Growth Trending?

In order to justify its P/S ratio, Changsha Broad Homes Industrial Group would need to produce growth that's similar to the industry.

Retrospectively, the last year delivered a frustrating 4.8% decrease to the company's top line. The last three years don't look nice either as the company has shrunk revenue by 25% in aggregate. Therefore, it's fair to say the revenue growth recently has been undesirable for the company.

Weighing that medium-term revenue trajectory against the broader industry's one-year forecast for expansion of 9.9% shows it's an unpleasant look.

With this information, we find it concerning that Changsha Broad Homes Industrial Group is trading at a fairly similar P/S compared to the industry. Apparently many investors in the company are way less bearish than recent times would indicate and aren't willing to let go of their stock right now. There's a good chance existing shareholders are setting themselves up for future disappointment if the P/S falls to levels more in line with the recent negative growth rates.

The Bottom Line On Changsha Broad Homes Industrial Group's P/S

Changsha Broad Homes Industrial Group appears to be back in favour with a solid price jump bringing its P/S back in line with other companies in the industry 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.

Our look at Changsha Broad Homes Industrial Group revealed its shrinking revenues over the medium-term haven't impacted the P/S as much as we anticipated, given the industry is set to grow. Even though it matches the industry, we're uncomfortable with the current P/S ratio, as this dismal revenue performance is unlikely to support a more positive sentiment for long. Unless the recent medium-term conditions improve markedly, investors will have a hard time accepting the share price as fair value.

You should always think about risks. Case in point, we've spotted 3 warning signs for Changsha Broad Homes Industrial Group you should be aware of, and 2 of them are significant.

If these risks are making you reconsider your opinion on Changsha Broad Homes Industrial Group, 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.