It's Down 32% But Brightstar Technology Group Co., Ltd. (HKG:8446) Could Be Riskier Than It Looks

Unfortunately for some shareholders, the Brightstar Technology Group Co., Ltd. (HKG:8446) share price has dived 32% in the last thirty days, prolonging recent pain. For any long-term shareholders, the last month ends a year to forget by locking in a 91% share price decline.

Although its price has dipped substantially, it's still not a stretch to say that Brightstar Technology Group's price-to-sales (or "P/S") ratio of 1.6x right now seems quite "middle-of-the-road" compared to the Entertainment industry in Hong Kong, where the median P/S ratio is around 1.5x. Although, it's not wise to simply ignore the P/S without explanation as investors may be disregarding a distinct opportunity or a costly mistake.

Check out our latest analysis for Brightstar Technology Group

What Does Brightstar Technology Group's P/S Mean For Shareholders?

Recent times have been quite advantageous for Brightstar Technology Group as its revenue has been rising very briskly. It might be that many expect the strong revenue performance to wane, which has kept the share price, and thus the P/S ratio, from rising. If you like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's not quite in favour.

We don't have analyst forecasts, but you can see how recent trends are setting up the company for the future by checking out our free report on Brightstar Technology Group's earnings, revenue and cash flow.

Do Revenue Forecasts Match The P/S Ratio?

In order to justify its P/S ratio, Brightstar Technology Group would need to produce growth that's similar to the industry.

Retrospectively, the last year delivered an exceptional 39% gain to the company's top line. Spectacularly, three year revenue growth has ballooned by several orders of magnitude, thanks in part to the last 12 months of revenue growth. So we can start by confirming that the company has done a tremendous job of growing revenue over that time.

Comparing that to the industry, which is only predicted to deliver 21% growth in the next 12 months, the company's momentum is stronger based on recent medium-term annualised revenue results.

In light of this, it's curious that Brightstar Technology Group's P/S sits in line with the majority of other companies. Apparently some shareholders believe the recent performance is at its limits and have been accepting lower selling prices.

What We Can Learn From Brightstar Technology Group's P/S?

With its share price dropping off a cliff, the P/S for Brightstar Technology Group looks to be in line with the rest of the Entertainment 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.

We didn't quite envision Brightstar Technology Group's P/S sitting in line with the wider industry, considering the revenue growth over the last three-year is higher than the current industry outlook. It'd be fair to assume that potential risks the company faces could be the contributing factor to the lower than expected P/S. While recent revenue trends over the past medium-term suggest that the risk of a price decline is low, investors appear to see the likelihood of revenue fluctuations in the future.

Don't forget that there may be other risks. For instance, we've identified 4 warning signs for Brightstar Technology Group (2 are significant) you should be aware of.

If you're unsure about the strength of Brightstar Technology 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.