Stock Analysis

Viva Goods Company Limited's (HKG:933) Subdued P/S Might Signal An Opportunity

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There wouldn't be many who think Viva Goods Company Limited's (HKG:933) price-to-sales (or "P/S") ratio of 0.7x is worth a mention when the median P/S for the Luxury industry in Hong Kong is very similar. 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 Viva Goods

SEHK:933 Price to Sales Ratio vs Industry May 9th 2024

What Does Viva Goods' P/S Mean For Shareholders?

Viva Goods certainly has been doing a great job lately as it's been growing its revenue at a really rapid pace. The P/S is probably moderate because investors think this strong revenue growth might not be enough to outperform the broader industry in the near future. Those who are bullish on Viva Goods 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 Viva Goods' earnings, revenue and cash flow.

Is There Some Revenue Growth Forecasted For Viva Goods?

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

Taking a look back first, we see that the company grew revenue by an impressive 63% last year. This great performance means it was also able to deliver immense revenue growth over the last three years. Therefore, it's fair to say the revenue growth recently has been superb for the company.

When compared to the industry's one-year growth forecast of 13%, the most recent medium-term revenue trajectory is noticeably more alluring

With this information, we find it interesting that Viva Goods 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

We'd say the price-to-sales ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

We've established that Viva Goods 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.

The company's balance sheet is another key area for risk analysis. Our free balance sheet analysis for Viva Goods with six simple checks will allow you to discover any risks that could be an issue.

If these risks are making you reconsider your opinion on Viva Goods, explore our interactive list of high quality stocks to get an idea of what else is out there.

Valuation is complex, but we're helping make it simple.

Find out whether Viva Goods is potentially over or undervalued by checking out our comprehensive analysis, which includes fair value estimates, risks and warnings, dividends, insider transactions and financial health.

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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.