Some GC Construction Holdings Limited (HKG:1489) Shareholders Look For Exit As Shares Take 27% Pounding

To the annoyance of some shareholders, GC Construction Holdings Limited (HKG:1489) shares are down a considerable 27% in the last month, which continues a horrid run for the company. Instead of being rewarded, shareholders who have already held through the last twelve months are now sitting on a 32% share price drop.

In spite of the heavy fall in price, you could still be forgiven for feeling indifferent about GC Construction Holdings' P/S ratio of 0.6x, since the median price-to-sales (or "P/S") ratio for the Consumer Durables industry in Hong Kong is also close to 0.5x. 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.

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What Does GC Construction Holdings' P/S Mean For Shareholders?

As an illustration, revenue has deteriorated at GC Construction Holdings over the last year, which is not ideal at all. 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 you like the company, you'd at least be hoping this is the case so that you could potentially pick up some stock while it's not quite in favour.

Want the full picture on earnings, revenue and cash flow for the company? Then our free report on GC Construction Holdings will help you shine a light on its historical performance.

How Is GC Construction Holdings' Revenue Growth Trending?

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

Retrospectively, the last year delivered a frustrating 9.3% decrease to the company's top line. This has soured the latest three-year period, which nevertheless managed to deliver a decent 16% overall rise in revenue. Accordingly, while they would have preferred to keep the run going, shareholders would be roughly satisfied with the medium-term rates of revenue growth.

This is in contrast to the rest of the industry, which is expected to grow by 9.3% over the next year, materially higher than the company's recent medium-term annualised growth rates.

In light of this, it's curious that GC Construction Holdings' P/S sits in line with the majority of other companies. It seems most investors are ignoring the fairly limited recent growth rates and are willing to pay up for exposure to the stock. They may be setting themselves up for future disappointment if the P/S falls to levels more in line with recent growth rates.

The Bottom Line On GC Construction Holdings' P/S

With its share price dropping off a cliff, the P/S for GC Construction Holdings looks to be in line with the rest of the Consumer Durables industry. 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.

Our examination of GC Construction 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. When we see weak revenue with slower than industry growth, we suspect the share price is at risk of declining, bringing the P/S back in line with expectations. If recent medium-term revenue trends continue, the probability of a share price decline will become quite substantial, placing shareholders at risk.

Before you take the next step, you should know about the 2 warning signs for GC Construction Holdings (1 is a bit unpleasant!) that we have uncovered.

If you're unsure about the strength of GC Construction 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.