Risks Still Elevated At These Prices As Grand Ocean Advanced Resources Company Limited (HKG:65) Shares Dive 30%

The Grand Ocean Advanced Resources Company Limited (HKG:65) share price has softened a substantial 30% over the previous 30 days, handing back much of the gains the stock has made lately. For any long-term shareholders, the last month ends a year to forget by locking in a 67% share price decline.

Although its price has dipped substantially, you could still be forgiven for feeling indifferent about Grand Ocean Advanced Resources' P/S ratio of 0.5x, since the median price-to-sales (or "P/S") ratio for the Oil and Gas industry in Hong Kong is also close to 0.8x. 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.

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See our latest analysis for Grand Ocean Advanced Resources

What Does Grand Ocean Advanced Resources' Recent Performance Look Like?

For instance, Grand Ocean Advanced Resources' receding revenue in recent times would have to be some food for thought. It might be that many expect the company to put the disappointing revenue performance behind them over the coming period, which has kept the P/S from falling. If not, then existing shareholders may be a little nervous about the viability of the share price.

Want the full picture on earnings, revenue and cash flow for the company? Then our free report on Grand Ocean Advanced Resources will help you shine a light on its historical performance.

How Is Grand Ocean Advanced Resources' Revenue Growth Trending?

The only time you'd be comfortable seeing a P/S like Grand Ocean Advanced Resources' is when the company's growth is tracking the industry closely.

In reviewing the last year of financials, we were disheartened to see the company's revenues fell to the tune of 21%. As a result, revenue from three years ago have also fallen 29% overall. So unfortunately, we have to acknowledge that the company has not done a great job of growing revenue over that time.

In contrast to the company, the rest of the industry is expected to grow by 0.4% over the next year, which really puts the company's recent medium-term revenue decline into perspective.

With this in mind, we find it worrying that Grand Ocean Advanced Resources' P/S exceeds that of its industry peers. It seems most investors are ignoring the recent poor growth rate and are hoping for a turnaround in the company's business prospects. There's a good chance existing shareholders are setting themselves up for future disappointment if the P/S falls to levels more in line with the recent negative growth rates.

What We Can Learn From Grand Ocean Advanced Resources' P/S?

With its share price dropping off a cliff, the P/S for Grand Ocean Advanced Resources looks to be in line with the rest of the Oil and Gas industry. 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.

Our look at Grand Ocean Advanced Resources revealed its shrinking revenues over the medium-term haven't impacted the P/S as much as we anticipated, given the industry is set to grow. Even though it matches the industry, we're uncomfortable with the current P/S ratio, as this dismal revenue performance is unlikely to support a more positive sentiment for long. Unless the the circumstances surrounding the recent medium-term improve, it wouldn't be wrong to expect a a difficult period ahead for the company's shareholders.

You should always think about risks. Case in point, we've spotted 3 warning signs for Grand Ocean Advanced Resources you should be aware of, and 2 of them shouldn't be ignored.

If companies with solid past earnings growth is up your alley, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

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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.