Haichang Ocean Park Holdings Ltd. (HKG:2255) Shares Slammed 30% But Getting In Cheap Might Be Difficult Regardless

The Haichang Ocean Park Holdings Ltd. (HKG:2255) share price has fared very poorly over the last month, falling by a substantial 30%. The drop over the last 30 days has capped off a tough year for shareholders, with the share price down 44% in that time.

In spite of the heavy fall in price, you could still be forgiven for thinking Haichang Ocean Park Holdings is a stock not worth researching with a price-to-sales ratios (or "P/S") of 2.2x, considering almost half the companies in Hong Kong's Hospitality industry have P/S ratios below 0.7x. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the elevated P/S.

View our latest analysis for Haichang Ocean Park Holdings

What Does Haichang Ocean Park Holdings' P/S Mean For Shareholders?

With revenue growth that's superior to most other companies of late, Haichang Ocean Park Holdings has been doing relatively well. It seems the market expects this form will continue into the future, hence the elevated P/S ratio. 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 Haichang Ocean Park Holdings.

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

There's an inherent assumption that a company should outperform the industry for P/S ratios like Haichang Ocean Park Holdings' to be considered reasonable.

If we review the last year of revenue growth, the company posted a terrific increase of 45%. However, this wasn't enough as the latest three year period has seen the company endure a nasty 14% drop in revenue in aggregate. Therefore, it's fair to say the revenue growth recently has been undesirable for the company.

Turning to the outlook, the next year should generate growth of 50% as estimated by the lone analyst watching the company. With the industry only predicted to deliver 15%, the company is positioned for a stronger revenue result.

With this in mind, it's not hard to understand why Haichang Ocean Park Holdings' P/S is high relative to its industry peers. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.

What We Can Learn From Haichang Ocean Park Holdings' P/S?

Despite the recent share price weakness, Haichang Ocean Park Holdings' P/S remains higher than most other companies in 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.

As we suspected, our examination of Haichang Ocean Park Holdings' analyst forecasts revealed that its superior revenue outlook is contributing to its high P/S. It appears that shareholders are confident in the company's future revenues, which is propping up the P/S. Unless the analysts have really missed the mark, these strong revenue forecasts should keep the share price buoyant.

Plus, you should also learn about this 1 warning sign we've spotted with Haichang Ocean Park Holdings.

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.