Positive Sentiment Still Eludes CMGE Technology Group Limited (HKG:302) Following 25% Share Price Slump

The CMGE Technology Group Limited (HKG:302) share price has softened a substantial 25% over the previous 30 days, handing back much of the gains the stock has made lately. The drop over the last 30 days has capped off a tough year for shareholders, with the share price down 34% in that time.

Since its price has dipped substantially, CMGE Technology Group's price-to-sales (or "P/S") ratio of 0.9x might make it look like a buy right now compared to the Entertainment industry in Hong Kong, where around half of the companies have P/S ratios above 2.4x and even P/S above 5x are quite common. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/S.

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See our latest analysis for CMGE Technology Group

What Does CMGE Technology Group's Recent Performance Look Like?

CMGE Technology Group hasn't been tracking well recently as its declining revenue compares poorly to other companies, which have seen some growth in their revenues on average. The P/S ratio is probably low because investors think this poor revenue performance isn't going to get any better. If you still like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's out of favour.

Keen to find out how analysts think CMGE Technology Group's future stacks up against the industry? In that case, our free report is a great place to start.

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

In order to justify its P/S ratio, CMGE Technology Group would need to produce sluggish growth that's trailing 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 37%. This means it has also seen a slide in revenue over the longer-term as revenue is down 51% in total over the last three years. Accordingly, shareholders would have felt downbeat about the medium-term rates of revenue growth.

Shifting to the future, estimates from the sole analyst covering the company suggest revenue should grow by 13% over the next year. Meanwhile, the rest of the industry is forecast to expand by 11%, which is not materially different.

In light of this, it's peculiar that CMGE Technology Group's P/S sits below the majority of other companies. Apparently some shareholders are doubtful of the forecasts and have been accepting lower selling prices.

The Bottom Line On CMGE Technology Group's P/S

CMGE Technology Group's recently weak share price has pulled its P/S back below other Entertainment companies. 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.

We've seen that CMGE Technology Group currently trades on a lower than expected P/S since its forecast growth is in line with the wider industry. Despite average revenue growth estimates, there could be some unobserved threats keeping the P/S low. It appears some are indeed anticipating revenue instability, because these conditions should normally provide more support to the share price.

There are also other vital risk factors to consider and we've discovered 2 warning signs for CMGE Technology Group (1 is significant!) that you should be aware of before investing here.

It's important to make sure you look for a great company, not just the first idea you come across. So if growing profitability aligns with your idea of a great company, take a peek at this free list of interesting companies with strong recent earnings growth (and a low P/E).

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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.