China Ever Grand Financial Leasing Group Co., Ltd.'s (HKG:379) 33% Dip In Price Shows Sentiment Is Matching Revenues

Unfortunately for some shareholders, the China Ever Grand Financial Leasing Group Co., Ltd. (HKG:379) share price has dived 33% 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 65% share price decline.

Following the heavy fall in price, it would be understandable if you think China Ever Grand Financial Leasing Group is a stock with good investment prospects with a price-to-sales ratios (or "P/S") of 0.7x, considering almost half the companies in Hong Kong's Diversified Financial industry have P/S ratios above 2.1x. However, the P/S might be low for a reason and it requires further investigation to determine if it's justified.

View our latest analysis for China Ever Grand Financial Leasing Group

How Has China Ever Grand Financial Leasing Group Performed Recently?

Recent times have been quite advantageous for China Ever Grand Financial Leasing Group as its revenue has been rising very briskly. One possibility is that the P/S ratio is low because investors think this strong revenue growth might actually underperform the broader industry in the near future. If you 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.

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 China Ever Grand Financial Leasing Group's earnings, revenue and cash flow.

Do Revenue Forecasts Match The Low P/S Ratio?

In order to justify its P/S ratio, China Ever Grand Financial Leasing Group would need to produce sluggish growth that's trailing the industry.

Taking a look back first, we see that the company grew revenue by an impressive 51% last year. Despite this strong recent growth, it's still struggling to catch up as its three-year revenue frustratingly shrank by 17% overall. Therefore, it's fair to say the revenue growth recently has been undesirable for the company.

Weighing that medium-term revenue trajectory against the broader industry's one-year forecast for expansion of 28% shows it's an unpleasant look.

In light of this, it's understandable that China Ever Grand Financial Leasing Group's P/S would sit below the majority of other companies. Nonetheless, there's no guarantee the P/S has reached a floor yet with revenue going in reverse. Even just maintaining these prices could be difficult to achieve as recent revenue trends are already weighing down the shares.

The Final Word

The southerly movements of China Ever Grand Financial Leasing Group's shares means its P/S is now sitting at a pretty low level. While the price-to-sales ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of revenue expectations.

It's no surprise that China Ever Grand Financial Leasing Group maintains its low P/S off the back of its sliding revenue over the medium-term. Right now shareholders are accepting the low P/S as they concede future revenue probably won't provide any pleasant surprises either. Given the current circumstances, it seems unlikely that the share price will experience any significant movement in either direction in the near future if recent medium-term revenue trends persist.

You should always think about risks. Case in point, we've spotted 3 warning signs for China Ever Grand Financial Leasing Group you should be aware of.

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.