Revenues Not Telling The Story For East Buy Holding Limited (HKG:1797)

When close to half the companies in the Consumer Retailing industry in Hong Kong have price-to-sales ratios (or "P/S") below 0.6x, you may consider East Buy Holding Limited (HKG:1797) as a stock to potentially avoid with its 1.9x P/S ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the elevated P/S.

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Check out our latest analysis for East Buy Holding

How Has East Buy Holding Performed Recently?

East Buy Holding certainly has been doing a good job lately as it's been growing revenue more than most other companies. The P/S is probably high because investors think this strong revenue performance will continue. If not, then existing shareholders might be a little nervous about the viability of the share price.

If you'd like to see what analysts are forecasting going forward, you should check out our free report on East Buy Holding.

How Is East Buy Holding's Revenue Growth Trending?

East Buy Holding's P/S ratio would be typical for a company that's expected to deliver solid growth, and importantly, perform better than the industry.

Retrospectively, the last year delivered an exceptional 50% gain to the company's top line. The latest three year period has also seen an incredible overall rise in revenue, aided by its incredible short-term performance. So we can start by confirming that the company has done a tremendous job of growing revenue over that time.

Shifting to the future, estimates from the six analysts covering the company suggest revenue growth is heading into negative territory, declining 29% over the next year. Meanwhile, the broader industry is forecast to expand by 10%, which paints a poor picture.

In light of this, it's alarming that East Buy Holding's P/S sits above the majority of other companies. Apparently many investors in the company reject the analyst cohort's pessimism and aren't willing to let go of their stock at any price. Only the boldest would assume these prices are sustainable as these declining revenues are likely to weigh heavily on the share price eventually.

The Bottom Line On East Buy Holding's P/S

While the price-to-sales ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of revenue expectations.

For a company with revenues that are set to decline in the context of a growing industry, East Buy Holding's P/S is much higher than we would've anticipated. Right now we aren't comfortable with the high P/S as the predicted future revenue decline likely to impact the positive sentiment that's propping up the P/S. At these price levels, investors should remain cautious, particularly if things don't improve.

The company's balance sheet is another key area for risk analysis. You can assess many of the main risks through our free balance sheet analysis for East Buy Holding with six simple checks.

If you're unsure about the strength of East Buy Holding's 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.