Blue Moon Group Holdings Limited's (HKG:6993) 28% Cheaper Price Remains In Tune With Revenues

Blue Moon Group Holdings Limited (HKG:6993) 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. Looking at the bigger picture, even after this poor month the stock is up 55% in the last year.

In spite of the heavy fall in price, when almost half of the companies in Hong Kong's Household Products industry have price-to-sales ratios (or "P/S") below 0.5x, you may still consider Blue Moon Group Holdings as a stock probably not worth researching with its 2.1x P/S ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the elevated P/S.

View our latest analysis for Blue Moon Group Holdings

What Does Blue Moon Group Holdings' P/S Mean For Shareholders?

Recent revenue growth for Blue Moon Group Holdings has been in line with the industry. It might be that many expect the mediocre revenue performance to strengthen positively, which has kept the P/S ratio from falling. If not, then existing shareholders may be a little nervous about the viability of the share price.

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Blue Moon Group Holdings.

How Is Blue Moon Group Holdings' Revenue Growth Trending?

There's an inherent assumption that a company should outperform the industry for P/S ratios like Blue Moon Group Holdings' to be considered reasonable.

If we review the last year of revenue growth, the company posted a worthy increase of 13%. The latest three year period has also seen a 19% overall rise in revenue, aided somewhat by its short-term performance. So we can start by confirming that the company has actually done a good job of growing revenue over that time.

Shifting to the future, estimates from the four analysts covering the company suggest revenue should grow by 9.8% per annum over the next three years. That's shaping up to be materially higher than the 5.5% each year growth forecast for the broader industry.

In light of this, it's understandable that Blue Moon Group Holdings' 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.

The Key Takeaway

Blue Moon Group Holdings' P/S remain high even after its stock plunged. 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.

We've established that Blue Moon Group Holdings maintains its high P/S on the strength of its forecasted revenue growth being higher than the the rest of the Household Products industry, as expected. Right now shareholders are comfortable with the P/S as they are quite confident future revenues aren't under threat. It's hard to see the share price falling strongly in the near future under these circumstances.

The company's balance sheet is another key area for risk analysis. Take a look at our free balance sheet analysis for Blue Moon Group Holdings with six simple checks on some of these key factors.

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.