Volcano Spring International Holdings Limited (HKG:1715) May Have Run Too Fast Too Soon With Recent 35% Price Plummet

Unfortunately for some shareholders, the Volcano Spring International Holdings Limited (HKG:1715) share price has dived 35% in the last thirty days, prolonging recent pain. The recent drop completes a disastrous twelve months for shareholders, who are sitting on a 77% loss during that time.

Even after such a large drop in price, you could still be forgiven for feeling indifferent about Volcano Spring International Holdings' P/S ratio of 0.5x, since the median price-to-sales (or "P/S") ratio for the Consumer Durables industry in Hong Kong is about the same. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/S.

View our latest analysis for Volcano Spring International Holdings

What Does Volcano Spring International Holdings' P/S Mean For Shareholders?

For instance, Volcano Spring International Holdings' receding revenue in recent times would have to be some food for thought. 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.

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

Is There Some Revenue Growth Forecasted For Volcano Spring International Holdings?

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

Taking a look back first, the company's revenue growth last year wasn't something to get excited about as it posted a disappointing decline of 18%. This means it has also seen a slide in revenue over the longer-term as revenue is down 58% in total over the last three years. Accordingly, shareholders would have felt downbeat about the medium-term rates of revenue growth.

Weighing that medium-term revenue trajectory against the broader industry's one-year forecast for expansion of 32% shows it's an unpleasant look.

With this in mind, we find it worrying that Volcano Spring International Holdings' P/S exceeds that of its industry peers. 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 Volcano Spring International Holdings' P/S

Following Volcano Spring International Holdings' share price tumble, its P/S is just clinging on to the industry median P/S. 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 find it unexpected that Volcano Spring International Holdings 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. Even though it matches the industry, we're uncomfortable with the current P/S ratio, as this dismal revenue performance is unlikely to support a more positive sentiment for long. If recent medium-term revenue trends continue, it will place shareholders' investments at risk and potential investors in danger of paying an unnecessary premium.

Having said that, be aware Volcano Spring International Holdings is showing 4 warning signs in our investment analysis, and 2 of those are a bit concerning.

If you're unsure about the strength of Volcano Spring 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.