The Price Is Right For Arrail Group Limited (HKG:6639) Even After Diving 28%

Arrail Group Limited (HKG:6639) shareholders won't be pleased to see that the share price has had a very rough month, dropping 28% and undoing the prior period's positive performance. The drop over the last 30 days has capped off a tough year for shareholders, with the share price down 27% in that time.

Even after such a large drop in price, you could still be forgiven for thinking Arrail Group is a stock not worth researching with a price-to-sales ratios (or "P/S") of 2.4x, considering almost half the companies in Hong Kong's Healthcare industry have P/S ratios below 1.3x. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's as high as it is.

Check out our latest analysis for Arrail Group

How Has Arrail Group Performed Recently?

While the industry has experienced revenue growth lately, Arrail Group's revenue has gone into reverse gear, which is not great. Perhaps the market is expecting the poor revenue to reverse, justifying it's current high P/S.. However, if this isn't the case, investors might get caught out paying too much for the stock.

Want the full picture on analyst estimates for the company? Then our free report on Arrail Group will help you uncover what's on the horizon.

How Is Arrail Group's Revenue Growth Trending?

The only time you'd be truly comfortable seeing a P/S as high as Arrail Group's is when the company's growth is on track to outshine the industry.

Taking a look back first, the company's revenue growth last year wasn't something to get excited about as it posted a disappointing decline of 9.2%. However, a few very strong years before that means that it was still able to grow revenue by an impressive 34% in total over the last three years. Although it's been a bumpy ride, it's still fair to say the revenue growth recently has been more than adequate for the company.

Looking ahead now, revenue is anticipated to climb by 24% each year during the coming three years according to the three analysts following the company. That's shaping up to be materially higher than the 18% per year growth forecast for the broader industry.

In light of this, it's understandable that Arrail Group's P/S sits above the majority of other companies. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.

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

Arrail Group's P/S remain high even after its stock plunged. 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.

As we suspected, our examination of Arrail Group's analyst forecasts revealed that its superior revenue outlook is contributing to its high P/S. It appears that shareholders are confident in the company's future revenues, which is propping up the P/S. Unless the analysts have really missed the mark, these strong revenue forecasts should keep the share price buoyant.

Before you settle on your opinion, we've discovered 1 warning sign for Arrail Group that you should be aware of.

If these risks are making you reconsider your opinion on Arrail 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.