Market Cool On Hidili Industry International Development Limited's (HKG:1393) Revenues Pushing Shares 25% Lower

To the annoyance of some shareholders, Hidili Industry International Development Limited (HKG:1393) shares are down a considerable 25% 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 56% share price decline.

Following the heavy fall in price, considering around half the companies operating in Hong Kong's Oil and Gas industry have price-to-sales ratios (or "P/S") above 0.8x, you may consider Hidili Industry International Development as an solid investment opportunity with its 0.2x 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.

View our latest analysis for Hidili Industry International Development

How Has Hidili Industry International Development Performed Recently?

Recent times have been quite advantageous for Hidili Industry International Development as its revenue has been rising very briskly. Perhaps the market is expecting future revenue performance to dwindle, which has kept the P/S suppressed. 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.

Want the full picture on earnings, revenue and cash flow for the company? Then our free report on Hidili Industry International Development will help you shine a light on its historical performance.

How Is Hidili Industry International Development's Revenue Growth Trending?

In order to justify its P/S ratio, Hidili Industry International Development would need to produce sluggish growth that's trailing the industry.

Retrospectively, the last year delivered an exceptional 51% gain to the company's top line. The strong recent performance means it was also able to grow revenue by 259% in total over the last three years. So we can start by confirming that the company has done a great job of growing revenue over that time.

In contrast to the company, the rest of the industry is expected to decline by 5.9% over the next year, which puts the company's recent medium-term positive growth rates in a good light for now.

In light of this, it's quite peculiar that Hidili Industry International Development's P/S sits below the majority of other companies. It looks like most investors are not convinced at all that the company can maintain its recent positive growth rate in the face of a shrinking broader industry.

The Key Takeaway

Hidili Industry International Development's recently weak share price has pulled its P/S back below other Oil and Gas companies. 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.

Upon analysing the past data, we see it is unexpected that Hidili Industry International Development is currently trading at a lower P/S than the rest of the industry given that its revenue growth in the past three-year years is exceeding expectations in a challenging industry. One assumption would be that there are some underlying risks to revenue that are keeping the P/S from rising to match the its strong performance. Perhaps there is some hesitation about the company's ability to stay its recent course and swim against the current of the broader industry turmoil. At least the risk of a price drop looks to be subdued, but investors think future revenue could see a lot of volatility.

Before you settle on your opinion, we've discovered 3 warning signs for Hidili Industry International Development (2 are significant!) that you should be aware of.

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

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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.