It's Down 45% But New Amante Group Limited (HKG:8412) Could Be Riskier Than It Looks

To the annoyance of some shareholders, New Amante Group Limited (HKG:8412) shares are down a considerable 45% in the last month, which continues a horrid run for the company. For any long-term shareholders, the last month ends a year to forget by locking in a 73% share price decline.

In spite of the heavy fall in price, it's still not a stretch to say that New Amante Group's price-to-sales (or "P/S") ratio of 0.3x right now seems quite "middle-of-the-road" compared to the Hospitality industry in Hong Kong, where the median P/S ratio is around 0.7x. 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.

See our latest analysis for New Amante Group

What Does New Amante Group's P/S Mean For Shareholders?

New Amante Group has been doing a good job lately as it's been growing revenue at a solid pace. One possibility is that the P/S is moderate because investors think this respectable revenue growth might not be enough to outperform the broader industry in the near future. If that doesn't eventuate, then existing shareholders probably aren't too pessimistic about the future direction of the share price.

We don't have analyst forecasts, but you can see how recent trends are setting up the company for the future by checking out our free report on New Amante Group's earnings, revenue and cash flow.

How Is New Amante Group's Revenue Growth Trending?

There's an inherent assumption that a company should be matching the industry for P/S ratios like New Amante Group's to be considered reasonable.

Retrospectively, the last year delivered a decent 14% gain to the company's revenues. The latest three year period has also seen an excellent 265% overall rise in revenue, aided somewhat by its short-term performance. Therefore, it's fair to say the revenue growth recently has been superb for the company.

Comparing that to the industry, which is only predicted to deliver 15% growth in the next 12 months, the company's momentum is stronger based on recent medium-term annualised revenue results.

In light of this, it's curious that New Amante Group's P/S sits in line with the majority of other companies. Apparently some shareholders believe the recent performance is at its limits and have been accepting lower selling prices.

The Bottom Line On New Amante Group's P/S

New Amante Group's plummeting stock price has brought its P/S back to a similar region as the rest of the industry. Generally, our preference is to limit the use of the price-to-sales ratio to establishing what the market thinks about the overall health of a company.

We've established that New Amante Group currently trades on a lower than expected P/S since its recent three-year growth is higher than the wider industry forecast. It'd be fair to assume that potential risks the company faces could be the contributing factor to the lower than expected P/S. At least the risk of a price drop looks to be subdued if recent medium-term revenue trends continue, but investors seem to think future revenue could see some volatility.

Plus, you should also learn about these 4 warning signs we've spotted with New Amante Group (including 3 which are significant).

If you're unsure about the strength of New Amante Group's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.