SANVO Fine Chemicals Group Limited's (HKG:301) Popularity With Investors Under Threat As Stock Sinks 32%

Unfortunately for some shareholders, the SANVO Fine Chemicals Group Limited (HKG:301) share price has dived 32% in the last thirty days, prolonging recent pain. Instead of being rewarded, shareholders who have already held through the last twelve months are now sitting on a 50% share price drop.

Even after such a large drop in price, you could still be forgiven for feeling indifferent about SANVO Fine Chemicals Group's P/S ratio of 0.3x, since the median price-to-sales (or "P/S") ratio for the Chemicals industry in Hong Kong is also close to 0.4x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/S.

See our latest analysis for SANVO Fine Chemicals Group

How Has SANVO Fine Chemicals Group Performed Recently?

Revenue has risen at a steady rate over the last year for SANVO Fine Chemicals Group, which is generally not a bad outcome. Perhaps the expectation moving forward is that the revenue growth will track in line with the wider industry for the near term, which has kept the P/S subdued. If not, then at least existing shareholders probably aren't too pessimistic about the future direction of the share price.

Although there are no analyst estimates available for SANVO Fine Chemicals Group, take a look at this free data-rich visualisation to see how the company stacks up on earnings, revenue and cash flow.

What Are Revenue Growth Metrics Telling Us About The P/S?

The only time you'd be comfortable seeing a P/S like SANVO Fine Chemicals Group's is when the company's growth is tracking the industry closely.

Retrospectively, the last year delivered a decent 5.7% gain to the company's revenues. The solid recent performance means it was also able to grow revenue by 11% in total over the last three years. So we can start by confirming that the company has actually done a good job of growing revenue over that time.

Comparing the recent medium-term revenue trends against the industry's one-year growth forecast of 6.6% shows it's noticeably less attractive.

With this information, we find it interesting that SANVO Fine Chemicals Group is trading at a fairly similar P/S compared to the industry. It seems most investors are ignoring the fairly limited recent growth rates and are willing to pay up for exposure to the stock. Maintaining these prices will be difficult to achieve as a continuation of recent revenue trends is likely to weigh down the shares eventually.

What We Can Learn From SANVO Fine Chemicals Group's P/S?

SANVO Fine Chemicals Group's plummeting stock price has brought its P/S back to a similar region as the rest of the 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.

Our examination of SANVO Fine Chemicals Group revealed its poor three-year revenue trends aren't resulting in a lower P/S as per our expectations, given they look worse than current industry outlook. When we see weak revenue with slower than industry growth, we suspect the share price is at risk of declining, bringing the P/S back in line with expectations. If recent medium-term revenue trends continue, the probability of a share price decline will become quite substantial, placing shareholders at risk.

And what about other risks? Every company has them, and we've spotted 4 warning signs for SANVO Fine Chemicals Group (of which 1 is significant!) you should know about.

If you're unsure about the strength of SANVO Fine Chemicals Group'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.