It's Down 37% But Brightstar Technology Group Co., Ltd. (HKG:8446) Could Be Riskier Than It Looks

Brightstar Technology Group Co., Ltd. (HKG:8446) shares have had a horrible month, losing 37% after a relatively good period beforehand. For any long-term shareholders, the last month ends a year to forget by locking in a 90% share price decline.

In spite of the heavy fall in price, it's still not a stretch to say that Brightstar Technology Group's price-to-sales (or "P/S") ratio of 1.9x right now seems quite "middle-of-the-road" compared to the Entertainment industry in Hong Kong, seeing as it matches the P/S ratio of the wider industry. While this might not raise any eyebrows, if the P/S ratio is not justified investors could be missing out on a potential opportunity or ignoring looming disappointment.

View our latest analysis for Brightstar Technology Group

How Has Brightstar Technology Group Performed Recently?

With revenue growth that's exceedingly strong of late, Brightstar Technology Group has been doing very well. Perhaps the market is expecting future revenue performance to taper off, which has kept the P/S from rising. Those who are bullish on Brightstar Technology Group will be hoping that this isn't the case, so that they can pick up the stock at a lower valuation.

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

Is There Some Revenue Growth Forecasted For Brightstar Technology Group?

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

If we review the last year of revenue growth, the company posted a terrific increase of 39%. The latest three year period has also seen an incredible overall rise in revenue, aided by its incredible short-term performance. So we can start by confirming that the company has done a tremendous job of growing revenue over that time.

Comparing that recent medium-term revenue trajectory with the industry's one-year growth forecast of 20% shows it's noticeably more attractive.

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?

Brightstar Technology Group's plummeting stock price has brought its P/S back to a similar region as the rest of the industry. While the price-to-sales ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of revenue expectations.

We've established that Brightstar Technology Group currently trades on a lower than expected P/S since its recent three-year growth is higher than the wider industry forecast. It'd be fair to assume that potential risks the company faces could be the contributing factor to the lower than expected P/S. At least the risk of a price drop looks to be subdued if recent medium-term revenue trends continue, but investors seem to think future revenue could see some volatility.

Before you settle on your opinion, we've discovered 4 warning signs for Brightstar Technology Group (2 make us uncomfortable!) that you should be aware of.

Of course, profitable companies with a history of great earnings growth are generally safer bets. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com