Positive Sentiment Still Eludes Khoon Group Limited (HKG:924) Following 36% Share Price Slump

To the annoyance of some shareholders, Khoon Group Limited (HKG:924) shares are down a considerable 36% 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 57% share price decline.

Although its price has dipped substantially, there still wouldn't be many who think Khoon Group's price-to-sales (or "P/S") ratio of 0.4x 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.

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View our latest analysis for Khoon Group

What Does Khoon Group's Recent Performance Look Like?

Revenue has risen firmly for Khoon Group recently, which is pleasing to see. It might be that many expect the respectable revenue performance to wane, which has kept the P/S from rising. If that doesn't eventuate, then existing shareholders probably aren't too pessimistic about the future direction of the share price.

Although there are no analyst estimates available for Khoon Group, take a look at this free data-rich visualisation to see how the company stacks up on earnings, revenue and cash flow.

Is There Some Revenue Growth Forecasted For Khoon Group?

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

Taking a look back first, we see that the company managed to grow revenues by a handy 12% last year. This was backed up an excellent period prior to see revenue up by 237% in total over the last three years. Accordingly, shareholders would have definitely welcomed those medium-term rates of revenue growth.

Comparing that to the industry, which is only predicted to deliver 17% growth in the next 12 months, the company's momentum is stronger based on recent medium-term annualised revenue results.

With this information, we find it interesting that Khoon Group is trading at a fairly similar P/S compared to the industry. It may be that most investors are not convinced the company can maintain its recent growth rates.

The Key Takeaway

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

We've established that Khoon 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. While recent revenue trends over the past medium-term suggest that the risk of a price decline is low, investors appear to see the likelihood of revenue fluctuations in the future.

There are also other vital risk factors to consider and we've discovered 3 warning signs for Khoon Group (1 makes us a bit uncomfortable!) that you should be aware of before investing here.

If you're unsure about the strength of Khoon Group's 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.