Investors Don't See Light At End Of China Ever Grand Financial Leasing Group Co., Ltd.'s (HKG:379) Tunnel And Push Stock Down 33%

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.

After such a large drop in price, given about half the companies operating in Hong Kong's Diversified Financial industry have price-to-sales ratios (or "P/S") above 2.1x, you may consider China Ever Grand Financial Leasing Group as an attractive investment with its 0.7x P/S ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/S.

See our latest analysis for China Ever Grand Financial Leasing Group

How Has China Ever Grand Financial Leasing Group Performed Recently?

With revenue growth that's exceedingly strong of late, China Ever Grand Financial Leasing Group has been doing very well. 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 that doesn't eventuate, then existing shareholders have reason to be quite optimistic about the future direction of the share price.

Although there are no analyst estimates available for China Ever Grand Financial Leasing Group, take a look at this free data-rich visualisation to see how the company stacks up on earnings, revenue and cash flow.

Is There Any Revenue Growth Forecasted For China Ever Grand Financial Leasing Group?

China Ever Grand Financial Leasing Group's P/S ratio would be typical for a company that's only expected to deliver limited growth, and importantly, perform worse than the industry.

If we review the last year of revenue growth, the company posted a terrific increase of 51%. Still, revenue has fallen 17% in total from three years ago, which is quite disappointing. Therefore, it's fair to say the revenue growth recently has been undesirable for the company.

Comparing that to the industry, which is predicted to deliver 28% growth in the next 12 months, the company's downward momentum based on recent medium-term revenue results is a sobering picture.

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. However, we think shrinking revenues are unlikely to lead to a stable P/S over the longer term, which could set up shareholders for future disappointment. There's potential for the P/S to fall to even lower levels if the company doesn't improve its top-line growth.

The Bottom Line On China Ever Grand Financial Leasing Group's P/S

China Ever Grand Financial Leasing Group's P/S has taken a dip along with its share price. Typically, we'd caution against reading too much into price-to-sales ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

As we suspected, our examination of China Ever Grand Financial Leasing Group revealed its shrinking revenue over the medium-term is contributing to its low P/S, given the industry is set to grow. Right now shareholders are accepting the low P/S as they concede future revenue probably won't provide any pleasant surprises either. Unless the recent medium-term conditions improve, they will continue to form a barrier for the share price around these levels.

It's always necessary to consider the ever-present spectre of investment risk. We've identified 3 warning signs with China Ever Grand Financial Leasing Group, and understanding them should be part of your investment process.

If these risks are making you reconsider your opinion on China Ever Grand Financial Leasing Group, explore our interactive list of high quality stocks to get an idea of what else is out there.

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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.