Even With A 28% Surge, Cautious Investors Are Not Rewarding Goodbaby International Holdings Limited's (HKG:1086) Performance Completely

Goodbaby International Holdings Limited (HKG:1086) shareholders are no doubt pleased to see that the share price has bounced 28% in the last month, although it is still struggling to make up recently lost ground. Looking further back, the 11% rise over the last twelve months isn't too bad notwithstanding the strength over the last 30 days.

In spite of the firm bounce in price, there still wouldn't be many who think Goodbaby International Holdings' price-to-sales (or "P/S") ratio of 0.1x is worth a mention when the median P/S in Hong Kong's Leisure industry is similar at about 0.6x. 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.

View our latest analysis for Goodbaby International Holdings

What Does Goodbaby International Holdings' Recent Performance Look Like?

Goodbaby International Holdings could be doing better as its revenue has been going backwards lately while most other companies have been seeing positive revenue growth. One possibility is that the P/S ratio is moderate because investors think this poor revenue performance will turn around. If not, then existing shareholders may be a little nervous about the viability of the share price.

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Goodbaby International Holdings.

Is There Some Revenue Growth Forecasted For Goodbaby International Holdings?

In order to justify its P/S ratio, Goodbaby International Holdings would need to produce growth that's similar to the industry.

Retrospectively, the last year delivered a frustrating 4.4% decrease to the company's top line. The last three years don't look nice either as the company has shrunk revenue by 4.5% in aggregate. So unfortunately, we have to acknowledge that the company has not done a great job of growing revenue over that time.

Turning to the outlook, the next year should generate growth of 11% as estimated by the only analyst watching the company. Meanwhile, the rest of the industry is forecast to only expand by 8.2%, which is noticeably less attractive.

With this information, we find it interesting that Goodbaby International Holdings is trading at a fairly similar P/S compared to the industry. Apparently some shareholders are skeptical of the forecasts and have been accepting lower selling prices.

The Final Word

Its shares have lifted substantially and now Goodbaby International Holdings' P/S is back within range of the industry median. 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've established that Goodbaby International Holdings currently trades on a lower than expected P/S since its forecasted revenue growth is higher than the wider industry. Perhaps uncertainty in the revenue forecasts are what's keeping the P/S ratio consistent with the rest of the industry. However, if you agree with the analysts' forecasts, you may be able to pick up the stock at an attractive price.

You always need to take note of risks, for example - Goodbaby International Holdings has 1 warning sign we think you should be aware of.

If you're unsure about the strength of Goodbaby International Holdings' 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.

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