Goodbaby International Holdings Limited's (HKG:1086) 41% Jump Shows Its Popularity With Investors

Goodbaby International Holdings Limited (HKG:1086) shares have continued their recent momentum with a 41% gain in the last month alone. Looking back a bit further, it's encouraging to see the stock is up 94% in the last year.

Although its price has surged higher, there still wouldn't be many who think Goodbaby International Holdings' price-to-sales (or "P/S") ratio of 0.2x is worth a mention when the median P/S in Hong Kong's Leisure industry is similar at about 0.6x. 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.

Check out our latest analysis for Goodbaby International Holdings

What Does Goodbaby International Holdings' Recent Performance Look Like?

With revenue growth that's inferior to most other companies of late, Goodbaby International Holdings has been relatively sluggish. Perhaps the market is expecting future revenue performance to lift, which has kept the P/S from declining. You'd really hope so, otherwise you're paying a relatively elevated price for a company with this sort of growth profile.

Keen to find out how analysts think Goodbaby International Holdings' future stacks up against the industry? In that case, our free report is a great place to start.

How Is Goodbaby International Holdings' Revenue Growth Trending?

Goodbaby International Holdings' P/S ratio would be typical for a company that's only expected to deliver moderate growth, and importantly, perform in line with the industry.

Retrospectively, the last year delivered a decent 5.3% gain to the company's revenues. Still, lamentably revenue has fallen 11% in aggregate from three years ago, which is disappointing. Therefore, it's fair to say the revenue growth recently has been undesirable for the company.

Shifting to the future, estimates from the lone analyst covering the company suggest revenue should grow by 11% over the next year. Meanwhile, the rest of the industry is forecast to expand by 10%, which is not materially different.

With this information, we can see why Goodbaby International Holdings is trading at a fairly similar P/S to the industry. It seems most investors are expecting to see average future growth and are only willing to pay a moderate amount for the stock.

The Final Word

Goodbaby International Holdings appears to be back in favour with a solid price jump bringing its P/S back in line with other companies in 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've seen that Goodbaby International Holdings maintains an adequate P/S seeing as its revenue growth figures match the rest of the industry. Right now shareholders are comfortable with the P/S as they are quite confident future revenue won't throw up any surprises. Unless these conditions change, they will continue to support the share price at these levels.

There are also other vital risk factors to consider and we've discovered 2 warning signs for Goodbaby International Holdings (1 is a bit unpleasant!) that you should be aware of before investing here.

Of course, profitable companies with a history of great earnings growth are generally safer bets. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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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.