Greatime International Holdings Limited (HKG:844) May Have Run Too Fast Too Soon With Recent 34% Price Plummet

Greatime International Holdings Limited (HKG:844) shares have had a horrible month, losing 34% after a relatively good period beforehand. The recent drop completes a disastrous twelve months for shareholders, who are sitting on a 53% loss during that time.

In spite of the heavy fall in price, there still wouldn't be many who think Greatime International Holdings' price-to-sales (or "P/S") ratio of 0.3x is worth a mention when the median P/S in Hong Kong's Luxury industry is similar at about 0.7x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/S.

See our latest analysis for Greatime International Holdings

What Does Greatime International Holdings' Recent Performance Look Like?

Revenue has risen firmly for Greatime International 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. Those who are bullish on Greatime International Holdings will be hoping that this isn't the case, so that they can pick up the stock at a lower valuation.

We don't have analyst forecasts, but you can see how recent trends are setting up the company for the future by checking out our free report on Greatime International Holdings' earnings, revenue and cash flow.

Is There Some Revenue Growth Forecasted For Greatime International Holdings?

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

Taking a look back first, we see that the company managed to grow revenues by a handy 8.4% last year. The solid recent performance means it was also able to grow revenue by 22% in total over the last three years. So we can start by confirming that the company has actually done a good job of growing revenue over that time.

This is in contrast to the rest of the industry, which is expected to grow by 12% over the next year, materially higher than the company's recent medium-term annualised growth rates.

In light of this, it's curious that Greatime International 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. Maintaining these prices will be difficult to achieve as a continuation of recent revenue trends is likely to weigh down the shares eventually.

The Final Word

Greatime International Holdings' plummeting stock price has brought its P/S back to a similar region as the rest of the industry. It's argued the price-to-sales ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

Our examination of Greatime International 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. Right now we are uncomfortable with the P/S as this revenue performance isn't likely to support a more positive sentiment for long. Unless there is a significant improvement in the company's medium-term performance, it will be difficult to prevent the P/S ratio from declining to a more reasonable level.

There are also other vital risk factors to consider and we've discovered 3 warning signs for Greatime International Holdings (1 makes us a bit uncomfortable!) that you should be aware of before investing here.

If companies with solid past earnings growth is up your alley, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

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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