Positive Sentiment Still Eludes Harbour Equine Holdings Limited (HKG:8377) Following 30% Share Price Slump

The Harbour Equine Holdings Limited (HKG:8377) share price has fared very poorly over the last month, falling by a substantial 30%. For any long-term shareholders, the last month ends a year to forget by locking in a 67% share price decline.

Although its price has dipped substantially, it's still not a stretch to say that Harbour Equine Holdings' price-to-sales (or "P/S") ratio of 0.6x right now seems quite "middle-of-the-road" compared to the Luxury industry in Hong Kong, seeing as it matches the P/S ratio of the wider industry. 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.

See our latest analysis for Harbour Equine Holdings

What Does Harbour Equine Holdings' P/S Mean For Shareholders?

Revenue has risen firmly for Harbour Equine Holdings recently, which is pleasing to see. It might be that many expect the respectable revenue performance to wane, which has kept the P/S from rising. If that doesn't eventuate, then existing shareholders probably aren't too pessimistic about the future direction of the share price.

Although there are no analyst estimates available for Harbour Equine Holdings, take a look at this free data-rich visualisation to see how the company stacks up on earnings, revenue and cash flow.

What Are Revenue Growth Metrics Telling Us About The P/S?

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

Retrospectively, the last year delivered a decent 14% gain to the company's revenues. This was backed up an excellent period prior to see revenue up by 91% in total over the last three years. Therefore, it's fair to say the revenue growth recently has been superb for the company.

Comparing that to the industry, which is only predicted to deliver 12% growth in the next 12 months, the company's momentum is stronger based on recent medium-term annualised revenue results.

With this information, we find it interesting that Harbour Equine Holdings is trading at a fairly similar P/S compared to the industry. It may be that most investors are not convinced the company can maintain its recent growth rates.

The Key Takeaway

Following Harbour Equine Holdings' share price tumble, its P/S is just clinging on to the industry median P/S. Generally, our preference is to limit the use of the price-to-sales ratio to establishing what the market thinks about the overall health of a company.

We've established that Harbour Equine Holdings currently trades on a lower than expected P/S since its recent three-year growth is higher than the wider industry forecast. It'd be fair to assume that potential risks the company faces could be the contributing factor to the lower than expected P/S. While recent revenue trends over the past medium-term suggest that the risk of a price decline is low, investors appear to see the likelihood of revenue fluctuations in the future.

Don't forget that there may be other risks. For instance, we've identified 3 warning signs for Harbour Equine Holdings that you should be aware of.

If strong companies turning a profit tickle your fancy, then you'll want to check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).

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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.