Stock Analysis

Labixiaoxin Snacks Group Limited (HKG:1262) Stock's 31% Dive Might Signal An Opportunity But It Requires Some Scrutiny

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Labixiaoxin Snacks Group Limited (HKG:1262) shareholders that were waiting for something to happen have been dealt a blow with a 31% share price drop in the last month. The recent drop completes a disastrous twelve months for shareholders, who are sitting on a 53% loss during that time.

Even after such a large drop in price, you could still be forgiven for feeling indifferent about Labixiaoxin Snacks Group's P/S ratio of 0.2x, since the median price-to-sales (or "P/S") ratio for the Food industry in Hong Kong is also close to 0.6x. Although, it's not wise to simply ignore the P/S without explanation as investors may be disregarding a distinct opportunity or a costly mistake.

See our latest analysis for Labixiaoxin Snacks Group

SEHK:1262 Price to Sales Ratio vs Industry May 10th 2024

What Does Labixiaoxin Snacks Group's Recent Performance Look Like?

Labixiaoxin Snacks Group has been doing a good job lately as it's been growing revenue at a solid pace. It might be that many expect the respectable revenue performance to wane, which has kept the P/S from rising. 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 not quite in 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 Labixiaoxin Snacks Group's earnings, revenue and cash flow.

Is There Some Revenue Growth Forecasted For Labixiaoxin Snacks Group?

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

If we review the last year of revenue growth, the company posted a worthy increase of 12%. This was backed up an excellent period prior to see revenue up by 50% in total over the last three years. Therefore, it's fair to say the revenue growth recently has been superb for the company.

This is in contrast to the rest of the industry, which is expected to grow by 10% over the next year, materially lower than the company's recent medium-term annualised growth rates.

With this information, we find it interesting that Labixiaoxin Snacks Group is trading at a fairly similar P/S compared to the industry. Apparently some shareholders believe the recent performance is at its limits and have been accepting lower selling prices.

What We Can Learn From Labixiaoxin Snacks Group's P/S?

With its share price dropping off a cliff, the P/S for Labixiaoxin Snacks Group looks to be in line with the rest of the Food 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.

To our surprise, Labixiaoxin Snacks Group revealed its three-year revenue trends aren't contributing to its P/S as much as we would have predicted, given they look better than current industry expectations. When we see strong revenue with faster-than-industry growth, we can only assume potential risks are what might be placing pressure on the P/S ratio. While recent revenue trends over the past medium-term suggest that the risk of a price decline is low, investors appear to see the likelihood of revenue fluctuations in the future.

And what about other risks? Every company has them, and we've spotted 1 warning sign for Labixiaoxin Snacks Group you should know about.

If strong companies turning a profit tickle your fancy, then you'll want to check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).

Valuation is complex, but we're helping make it simple.

Find out whether Labixiaoxin Snacks Group is potentially over or undervalued by checking out our comprehensive analysis, which includes fair value estimates, risks and warnings, dividends, insider transactions and financial health.

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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.