Redco Properties Group Limited (HKG:1622) Shares Fly 105% But Investors Aren't Buying For Growth

Redco Properties Group Limited (HKG:1622) shareholders would be excited to see that the share price has had a great month, posting a 105% gain and recovering from prior weakness. But the last month did very little to improve the 63% share price decline over the last year.

In spite of the firm bounce in price, Redco Properties Group's price-to-sales (or "P/S") ratio of 0.1x might still make it look like a buy right now compared to the Real Estate industry in Hong Kong, where around half of the companies have P/S ratios above 0.7x and even P/S above 3x are quite common. However, the P/S might be low for a reason and it requires further investigation to determine if it's justified.

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View our latest analysis for Redco Properties Group

How Has Redco Properties Group Performed Recently?

As an illustration, revenue has deteriorated at Redco Properties Group over the last year, which is not ideal at all. One possibility is that the P/S is low because investors think the company won't do enough to avoid underperforming the broader industry in the near future. 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 out of favour.

Want the full picture on earnings, revenue and cash flow for the company? Then our free report on Redco Properties Group will help you shine a light on its historical performance.

Is There Any Revenue Growth Forecasted For Redco Properties Group?

In order to justify its P/S ratio, Redco Properties Group would need to produce sluggish growth that's trailing the industry.

In reviewing the last year of financials, we were disheartened to see the company's revenues fell to the tune of 2.4%. As a result, revenue from three years ago have also fallen 74% overall. So unfortunately, we have to acknowledge that the company has not done a great job of growing revenue over that time.

In contrast to the company, the rest of the industry is expected to grow by 5.2% over the next year, which really puts the company's recent medium-term revenue decline into perspective.

With this in mind, we understand why Redco Properties Group's P/S is lower than most of its industry peers. However, we think shrinking revenues are unlikely to lead to a stable P/S over the longer term, which could set up shareholders for future disappointment. Even just maintaining these prices could be difficult to achieve as recent revenue trends are already weighing down the shares.

What We Can Learn From Redco Properties Group's P/S?

The latest share price surge wasn't enough to lift Redco Properties Group's P/S close to the industry median. 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.

It's no surprise that Redco Properties Group maintains its low P/S off the back of its sliding revenue over the medium-term. Right now shareholders are accepting the low P/S as they concede future revenue probably won't provide any pleasant surprises either. Given the current circumstances, it seems unlikely that the share price will experience any significant movement in either direction in the near future if recent medium-term revenue trends persist.

Don't forget that there may be other risks. For instance, we've identified 6 warning signs for Redco Properties Group (4 are potentially serious) you should be aware of.

If these risks are making you reconsider your opinion on Redco Properties Group, explore our interactive list of high quality stocks to get an idea of what else is out there.

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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.