Joy Spreader Group Inc. (HKG:6988) Stock's 27% Dive Might Signal An Opportunity But It Requires Some Scrutiny

Joy Spreader Group Inc. (HKG:6988) shares have retraced a considerable 27% in the last month, reversing a fair amount of their solid recent performance. The drop over the last 30 days has capped off a tough year for shareholders, with the share price down 23% in that time.

Following the heavy fall in price, considering around half the companies operating in Hong Kong's Media industry have price-to-sales ratios (or "P/S") above 0.7x, you may consider Joy Spreader Group as an solid investment opportunity with its 0.1x P/S ratio. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's limited.

View our latest analysis for Joy Spreader Group

How Has Joy Spreader Group Performed Recently?

Joy Spreader 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. It seems that many are expecting the poor revenue performance to persist, which has repressed the P/S ratio. 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.

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

How Is Joy Spreader Group's Revenue Growth Trending?

There's an inherent assumption that a company should underperform the industry for P/S ratios like Joy Spreader Group's to be considered reasonable.

In reviewing the last year of financials, we were disheartened to see the company's revenues fell to the tune of 32%. However, a few very strong years before that means that it was still able to grow revenue by an impressive 162% in total over the last three years. Accordingly, while they would have preferred to keep the run going, shareholders would definitely welcome the medium-term rates of revenue growth.

Looking ahead now, revenue is anticipated to climb by 248% during the coming year according to the sole analyst following the company. With the industry only predicted to deliver 5.7%, the company is positioned for a stronger revenue result.

With this in consideration, we find it intriguing that Joy Spreader Group's P/S sits behind most of its industry peers. It looks like most investors are not convinced at all that the company can achieve future growth expectations.

The Key Takeaway

Joy Spreader Group's P/S has taken a dip along with its share price. Using the price-to-sales ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

To us, it seems Joy Spreader Group currently trades on a significantly depressed P/S given its forecasted revenue growth is higher than the rest of its industry. The reason for this depressed P/S could potentially be found in the risks the market is pricing in. While the possibility of the share price plunging seems unlikely due to the high growth forecasted for the company, the market does appear to have some hesitation.

We don't want to rain on the parade too much, but we did also find 3 warning signs for Joy Spreader Group (1 makes us a bit uncomfortable!) that you need to be mindful of.

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.