Wanda Hotel Development Company Limited (HKG:169) Shares Slammed 77% But Getting In Cheap Might Be Difficult Regardless

Wanda Hotel Development Company Limited (HKG:169) shareholders that were waiting for something to happen have been dealt a blow with a 77% share price drop in the last month. The drop over the last 30 days has capped off a tough year for shareholders, with the share price down 36% in that time.

In spite of the heavy fall in price, there still wouldn't be many who think Wanda Hotel Development's price-to-sales (or "P/S") ratio of 0.7x is worth a mention when it essentially matches the median P/S in Hong Kong's Real Estate industry. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/S.

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View our latest analysis for Wanda Hotel Development

How Has Wanda Hotel Development Performed Recently?

Wanda Hotel Development certainly has been doing a great job lately as it's been growing its revenue at a really rapid pace. Perhaps the market is expecting future revenue performance to taper off, which has kept the P/S from rising. Those who are bullish on Wanda Hotel Development 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 Wanda Hotel Development, take a look at this free data-rich visualisation to see how the company stacks up on earnings, revenue and cash flow.

Do Revenue Forecasts Match The P/S Ratio?

The only time you'd be comfortable seeing a P/S like Wanda Hotel Development's is when the company's growth is tracking the industry closely.

If we review the last year of revenue growth, the company posted a terrific increase of 77%. Revenue has also lifted 23% in aggregate from three years ago, mostly thanks to the last 12 months of growth. Accordingly, shareholders would have probably been satisfied with the medium-term rates of revenue growth.

It's interesting to note that the rest of the industry is similarly expected to grow by 5.3% over the next year, which is fairly even with the company's recent medium-term annualised growth rates.

With this information, we can see why Wanda Hotel Development is trading at a fairly similar P/S to the industry. Apparently shareholders are comfortable to simply hold on assuming the company will continue keeping a low profile.

What We Can Learn From Wanda Hotel Development's P/S?

Following Wanda Hotel Development's share price tumble, its P/S is just clinging on to the industry median P/S. 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.

It appears to us that Wanda Hotel Development maintains its moderate P/S off the back of its recent three-year growth being in line with the wider industry forecast. Right now shareholders are comfortable with the P/S as they are quite confident future revenue won't throw up any surprises. If recent medium-term revenue trends continue, it's hard to see the share price moving strongly in either direction in the near future under these circumstances.

We don't want to rain on the parade too much, but we did also find 3 warning signs for Wanda Hotel Development (2 are a bit concerning!) that you need to be mindful of.

If strong companies turning a profit tickle your fancy, then you'll want to check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).

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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.