Risks Still Elevated At These Prices As PT International Development Corporation Limited (HKG:372) Shares Dive 26%

To the annoyance of some shareholders, PT International Development Corporation Limited (HKG:372) shares are down a considerable 26% in the last month, which continues a horrid run for the company. For any long-term shareholders, the last month ends a year to forget by locking in a 64% share price decline.

Even after such a large drop in price, you could still be forgiven for feeling indifferent about International Development's P/S ratio of 0.3x, since the median price-to-sales (or "P/S") ratio for the Trade Distributors industry in Hong Kong is about the same. Although, it's not wise to simply ignore the P/S without explanation as investors may be disregarding a distinct opportunity or a costly mistake.

See our latest analysis for International Development

What Does International Development's Recent Performance Look Like?

Recent times have been quite advantageous for International Development as its revenue has been rising very briskly. It might be that many expect the strong revenue performance to wane, which has kept the share price, and thus the P/S ratio, from rising. 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 not quite in favour.

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 International Development's earnings, revenue and cash flow.

How Is International Development's Revenue Growth Trending?

There's an inherent assumption that a company should be matching the industry for P/S ratios like International Development's to be considered reasonable.

If we review the last year of revenue growth, the company posted a terrific increase of 226%. However, this wasn't enough as the latest three year period has seen the company endure a nasty 84% drop in revenue in aggregate. So unfortunately, we have to acknowledge that the company has not done a great job of growing revenues over that time.

Weighing that medium-term revenue trajectory against the broader industry's one-year forecast for expansion of 3.0% shows it's an unpleasant look.

With this in mind, we find it worrying that International Development's P/S exceeds that of its industry peers. It seems most investors are ignoring the recent poor growth rate and are hoping for a turnaround in the company's business prospects. Only the boldest would assume these prices are sustainable as a continuation of recent revenue trends is likely to weigh on the share price eventually.

The Final Word

With its share price dropping off a cliff, the P/S for International Development looks to be in line with the rest of the Trade Distributors industry. Typically, we'd caution against reading too much into price-to-sales ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

We find it unexpected that International Development trades at a P/S ratio that is comparable to the rest of the industry, despite experiencing declining revenues during the medium-term, while the industry as a whole is expected to grow. When we see revenue heading backwards in the context of growing industry forecasts, it'd make sense to expect a possible share price decline on the horizon, sending the moderate P/S lower. Unless the the circumstances surrounding the recent medium-term improve, it wouldn't be wrong to expect a a difficult period ahead for the company's shareholders.

You always need to take note of risks, for example - International Development has 3 warning signs we think you should be aware of.

If strong companies turning a profit tickle your fancy, then you'll want to check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).

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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.