Xiabuxiabu Catering Management (China) Holdings Co., Ltd. (HKG:520) Stock Catapults 26% Though Its Price And Business Still Lag The Industry

Despite an already strong run, Xiabuxiabu Catering Management (China) Holdings Co., Ltd. (HKG:520) shares have been powering on, with a gain of 26% in the last thirty days. Unfortunately, the gains of the last month did little to right the losses of the last year with the stock still down 13% over that time.

Although its price has surged higher, Xiabuxiabu Catering Management (China) Holdings may still be sending buy signals at present with its price-to-sales (or "P/S") ratio of 0.2x, considering almost half of all companies in the Hospitality industry in Hong Kong have P/S ratios greater than 0.8x and even P/S higher than 3x aren't out of the ordinary. However, the P/S might be low for a reason and it requires further investigation to determine if it's justified.

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

What Does Xiabuxiabu Catering Management (China) Holdings' Recent Performance Look Like?

Xiabuxiabu Catering Management (China) Holdings could be doing better as its revenue has been going backwards lately while most other companies have been seeing positive revenue growth. It seems that many are expecting the poor revenue performance to persist, which has repressed the P/S ratio. If you still like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's out of favour.

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Xiabuxiabu Catering Management (China) Holdings.

Do Revenue Forecasts Match The Low P/S Ratio?

There's an inherent assumption that a company should underperform the industry for P/S ratios like Xiabuxiabu Catering Management (China) Holdings' to be considered reasonable.

Retrospectively, the last year delivered a frustrating 21% decrease to the company's top line. The last three years don't look nice either as the company has shrunk revenue by 18% in aggregate. Accordingly, shareholders would have felt downbeat about the medium-term rates of revenue growth.

Looking ahead now, revenue is anticipated to climb by 2.1% per year during the coming three years according to the three analysts following the company. With the industry predicted to deliver 10% growth per annum, the company is positioned for a weaker revenue result.

In light of this, it's understandable that Xiabuxiabu Catering Management (China) Holdings' P/S sits below the majority of other companies. Apparently many shareholders weren't comfortable holding on while the company is potentially eyeing a less prosperous future.

What We Can Learn From Xiabuxiabu Catering Management (China) Holdings' P/S?

The latest share price surge wasn't enough to lift Xiabuxiabu Catering Management (China) Holdings' P/S close to the industry median. 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 Xiabuxiabu Catering Management (China) Holdings' analyst forecasts revealed that its inferior revenue outlook is contributing 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.

A lot of potential risks can sit within a company's balance sheet. Take a look at our free balance sheet analysis for Xiabuxiabu Catering Management (China) Holdings with six simple checks on some of these key factors.

Of course, profitable companies with a history of great earnings growth are generally safer bets. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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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.