Rare Earth Magnesium Technology Group Holdings Limited (HKG:601) Shares May Have Slumped 29% But Getting In Cheap Is Still Unlikely

To the annoyance of some shareholders, Rare Earth Magnesium Technology Group Holdings Limited (HKG:601) shares are down a considerable 29% in the last month, which continues a horrid run for the company. For any long-term shareholders, the last month ends a year to forget by locking in a 79% share price decline.

Even after such a large drop in price, you could still be forgiven for feeling indifferent about Rare Earth Magnesium Technology Group Holdings' P/S ratio of 0.1x, since the median price-to-sales (or "P/S") ratio for the Metals and Mining 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 Rare Earth Magnesium Technology Group Holdings

What Does Rare Earth Magnesium Technology Group Holdings' Recent Performance Look Like?

For instance, Rare Earth Magnesium Technology Group Holdings' receding revenue in recent times would have to be some food for thought. One possibility is that the P/S is moderate because investors think the company might still do enough to be in line with the broader industry in the near future. If you like the company, you'd at least be hoping this is the case so that you could potentially pick up some stock while it's not quite in favour.

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

How Is Rare Earth Magnesium Technology Group Holdings' Revenue Growth Trending?

Rare Earth Magnesium Technology Group Holdings' P/S ratio would be typical for a company that's only expected to deliver moderate growth, and importantly, perform in line with the industry.

Retrospectively, the last year delivered a frustrating 48% decrease to the company's top line. The last three years don't look nice either as the company has shrunk revenue by 79% in aggregate. So unfortunately, we have to acknowledge that the company has not done a great job of growing revenue over that time.

Weighing that medium-term revenue trajectory against the broader industry's one-year forecast for expansion of 10% shows it's an unpleasant look.

With this information, we find it concerning that Rare Earth Magnesium Technology Group Holdings is trading at a fairly similar P/S compared to the industry. Apparently many investors in the company are way less bearish than recent times would indicate and aren't willing to let go of their stock right now. 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 Does Rare Earth Magnesium Technology Group Holdings' P/S Mean For Investors?

Following Rare Earth Magnesium Technology Group Holdings' share price tumble, its P/S is just clinging on to the industry median P/S. 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 look at Rare Earth Magnesium Technology Group Holdings 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 recent medium-term conditions improve markedly, investors will have a hard time accepting the share price as fair value.

Having said that, be aware Rare Earth Magnesium Technology Group Holdings is showing 5 warning signs in our investment analysis, and 4 of those make us uncomfortable.

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.