Lacklustre Performance Is Driving Xiabuxiabu Catering Management (China) Holdings Co., Ltd.'s (HKG:520) 29% Price Drop

The Xiabuxiabu Catering Management (China) Holdings Co., Ltd. (HKG:520) share price has fared very poorly over the last month, falling by a substantial 29%. For any long-term shareholders, the last month ends a year to forget by locking in a 62% share price decline.

After such a large drop in price, it would be understandable if you think Xiabuxiabu Catering Management (China) Holdings is a stock with good investment prospects with a price-to-sales ratios (or "P/S") of 0.2x, considering almost half the companies in Hong Kong's Hospitality industry have P/S ratios above 0.7x. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's limited.

Check out our latest analysis for Xiabuxiabu Catering Management (China) Holdings

How Has Xiabuxiabu Catering Management (China) Holdings Performed Recently?

Recent times haven't been great for Xiabuxiabu Catering Management (China) Holdings as its revenue has been rising slower than most other companies. Perhaps the market is expecting the current trend of poor revenue growth to continue, which has kept the P/S suppressed. If this is the case, then existing shareholders will probably struggle to get excited about the future direction of the share price.

Keen to find out how analysts think Xiabuxiabu Catering Management (China) Holdings' future stacks up against the industry? In that case, our free report is a great place to start.

How Is Xiabuxiabu Catering Management (China) Holdings' Revenue Growth Trending?

The only time you'd be truly comfortable seeing a P/S as low as Xiabuxiabu Catering Management (China) Holdings' is when the company's growth is on track to lag the industry.

Taking a look back first, we see that there was hardly any revenue growth to speak of for the company over the past year. This isn't what shareholders were looking for as it means they've been left with a 17% decline in revenue over the last three years in total. So unfortunately, we have to acknowledge that the company has not done a great job of growing revenue over that time.

Shifting to the future, estimates from the six analysts covering the company suggest revenue should grow by 8.8% per year over the next three years. That's shaping up to be materially lower than the 14% each year growth forecast for the broader industry.

With this information, we can see why Xiabuxiabu Catering Management (China) Holdings is trading at a P/S lower than the industry. It seems most investors are expecting to see limited future growth and are only willing to pay a reduced amount for the stock.

What Does Xiabuxiabu Catering Management (China) Holdings' P/S Mean For Investors?

Xiabuxiabu Catering Management (China) Holdings' recently weak share price has pulled its P/S back below other Hospitality companies. 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.

As expected, our analysis of Xiabuxiabu Catering Management (China) Holdings' analyst forecasts confirms that the company's underwhelming revenue outlook is a major contributor to its low P/S. At this stage investors feel the potential for an improvement in revenue isn't great enough to justify a higher P/S ratio. Unless these conditions improve, they will continue to form a barrier for the share price around these levels.

Having said that, be aware Xiabuxiabu Catering Management (China) Holdings is showing 1 warning sign in our investment analysis, you should know about.

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.