Magnus Concordia Group Limited (HKG:1172) May Have Run Too Fast Too Soon With Recent 26% Price Plummet

The Magnus Concordia Group Limited (HKG:1172) share price has softened a substantial 26% over the previous 30 days, handing back much of the gains the stock has made lately. Longer-term, the stock has been solid despite a difficult 30 days, gaining 25% in the last year.

Although its price has dipped substantially, you could still be forgiven for feeling indifferent about Magnus Concordia Group's P/S ratio of 0.9x, since the median price-to-sales (or "P/S") ratio for the Commercial Services industry in Hong Kong is also close to 0.5x. 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.

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View our latest analysis for Magnus Concordia Group

What Does Magnus Concordia Group's Recent Performance Look Like?

For example, consider that Magnus Concordia Group's financial performance has been poor lately as its revenue has been in decline. 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.

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

How Is Magnus Concordia Group's Revenue Growth Trending?

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

In reviewing the last year of financials, we were disheartened to see the company's revenues fell to the tune of 14%. The last three years don't look nice either as the company has shrunk revenue by 89% in aggregate. So unfortunately, we have to acknowledge that the company has not done a great job of growing revenue over that time.

In contrast to the company, the rest of the industry is expected to grow by 6.4% over the next year, which really puts the company's recent medium-term revenue decline into perspective.

In light of this, it's somewhat alarming that Magnus Concordia Group's P/S sits in line with the majority of other companies. 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 Magnus Concordia Group's P/S

Magnus Concordia Group's plummeting stock price has brought its P/S back to a similar region as the rest of the industry. Using the price-to-sales ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

We find it unexpected that Magnus Concordia Group 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. If recent medium-term revenue trends continue, it will place shareholders' investments at risk and potential investors in danger of paying an unnecessary premium.

We don't want to rain on the parade too much, but we did also find 3 warning signs for Magnus Concordia Group (1 is a bit concerning!) that you need to be mindful 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.