Xiabuxiabu Catering Management (China) Holdings Co., Ltd. (HKG:520) Shares May Have Slumped 27% But Getting In Cheap Is Still Unlikely

Unfortunately for some shareholders, the Xiabuxiabu Catering Management (China) Holdings Co., Ltd. (HKG:520) share price has dived 27% in the last thirty days, prolonging recent pain. For any long-term shareholders, the last month ends a year to forget by locking in a 75% share price decline.

Even after such a large drop in price, you could still be forgiven for feeling indifferent about Xiabuxiabu Catering Management (China) Holdings' P/S ratio of 0.2x, since the median price-to-sales (or "P/S") ratio for the Hospitality industry in Hong Kong is also close to 0.6x. While this might not raise any eyebrows, if the P/S ratio is not justified investors could be missing out on a potential opportunity or ignoring looming disappointment.

View our latest analysis for Xiabuxiabu Catering Management (China) Holdings

How Xiabuxiabu Catering Management (China) Holdings Has Been Performing

With revenue growth that's inferior to most other companies of late, Xiabuxiabu Catering Management (China) Holdings has been relatively sluggish. One possibility is that the P/S ratio is moderate because investors think this lacklustre revenue performance will turn around. You'd really hope so, otherwise you're paying a relatively elevated price for a company with this sort of growth profile.

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.

Is There Some Revenue Growth Forecasted For Xiabuxiabu Catering Management (China) Holdings?

Xiabuxiabu Catering Management (China) Holdings' P/S ratio would be typical for a company that's only expected to deliver moderate growth, and importantly, perform in line with the industry.

Retrospectively, the last year delivered an exceptional 25% gain to the company's top line. As a result, it also grew revenue by 8.5% in total over the last three years. Accordingly, shareholders would have probably been satisfied with the medium-term rates of revenue growth.

Shifting to the future, estimates from the eight analysts covering the company suggest revenue should grow by 12% each year over the next three years. That's shaping up to be materially lower than the 15% each year growth forecast for the broader industry.

In light of this, it's curious that Xiabuxiabu Catering Management (China) Holdings' P/S sits in line with the majority of other companies. It seems most investors are ignoring the fairly limited growth expectations and are willing to pay up for exposure to the stock. These shareholders may be setting themselves up for future disappointment if the P/S falls to levels more in line with the growth outlook.

The Final Word

Xiabuxiabu Catering Management (China) Holdings' plummeting stock price has brought its P/S back to a similar region as the rest of the industry. 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.

Our look at the analysts forecasts of Xiabuxiabu Catering Management (China) Holdings' revenue prospects has shown that its inferior revenue outlook isn't negatively impacting its P/S as much as we would have predicted. At present, we aren't confident in the P/S as the predicted future revenues aren't likely to support a more positive sentiment for long. A positive change is needed in order to justify the current price-to-sales ratio.

Plus, you should also learn about this 1 warning sign we've spotted with Xiabuxiabu Catering Management (China) Holdings.

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.