AV Promotions Holdings Limited's (HKG:8419) 28% Share Price Plunge Could Signal Some Risk

AV Promotions Holdings Limited (HKG:8419) shares have had a horrible month, losing 28% after a relatively good period beforehand. The recent drop completes a disastrous twelve months for shareholders, who are sitting on a 55% loss during that time.

In spite of the heavy fall in price, there still wouldn't be many who think AV Promotions Holdings' price-to-sales (or "P/S") ratio of 0.2x is worth a mention when the median P/S in Hong Kong's Commercial Services industry is similar at about 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.

See our latest analysis for AV Promotions Holdings

How AV Promotions Holdings Has Been Performing

With revenue growth that's exceedingly strong of late, AV Promotions Holdings has been doing very well. The P/S is probably moderate because investors think this strong revenue growth might not be enough to outperform the broader industry in the near future. Those who are bullish on AV Promotions Holdings will be hoping that this isn't the case, so that they can pick up the stock at a lower valuation.

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 AV Promotions Holdings' earnings, revenue and cash flow.

Is There Some Revenue Growth Forecasted For AV Promotions Holdings?

The only time you'd be comfortable seeing a P/S like AV Promotions Holdings' is when the company's growth is tracking the industry closely.

Retrospectively, the last year delivered an exceptional 48% gain to the company's top line. The latest three year period has also seen a 13% overall rise in revenue, aided extensively by its short-term performance. Therefore, it's fair to say the revenue growth recently has been respectable for the company.

This is in contrast to the rest of the industry, which is expected to grow by 8.9% over the next year, materially higher than the company's recent medium-term annualised growth rates.

With this in mind, we find it intriguing that AV Promotions Holdings' P/S is comparable to that of its industry peers. Apparently many investors in the company are less bearish than recent times would indicate and aren't willing to let go of their stock right now. Maintaining these prices will be difficult to achieve as a continuation of recent revenue trends is likely to weigh down the shares eventually.

What Does AV Promotions Holdings' P/S Mean For Investors?

With its share price dropping off a cliff, the P/S for AV Promotions Holdings looks to be in line with the rest of the Commercial Services 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.

Our examination of AV Promotions Holdings revealed its poor three-year revenue trends aren't resulting in a lower P/S as per our expectations, given they look worse than current industry outlook. Right now we are uncomfortable with the P/S as this revenue performance isn't likely to support a more positive sentiment for long. If recent medium-term revenue trends continue, the probability of a share price decline will become quite substantial, placing shareholders at risk.

There are also other vital risk factors to consider before investing and we've discovered 2 warning signs for AV Promotions Holdings that 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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com