Landsea Green Life Service Company Limited (HKG:1965) Screens Well But There Might Be A Catch

You may think that with a price-to-sales (or "P/S") ratio of 0.1x Landsea Green Life Service Company Limited (HKG:1965) is a stock worth checking out, seeing as almost half of all the Real Estate companies in Hong Kong have P/S ratios greater than 0.7x and even P/S higher than 3x aren't out of the ordinary. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/S.

View our latest analysis for Landsea Green Life Service

How Landsea Green Life Service Has Been Performing

Revenue has risen at a steady rate over the last year for Landsea Green Life Service, which is generally not a bad outcome. Perhaps the market believes the recent revenue performance might fall short of industry figures in the near future, leading to a reduced P/S. 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.

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 Landsea Green Life Service's earnings, revenue and cash flow.

How Is Landsea Green Life Service's Revenue Growth Trending?

The only time you'd be truly comfortable seeing a P/S as low as Landsea Green Life Service's is when the company's growth is on track to lag the industry.

Taking a look back first, we see that the company managed to grow revenues by a handy 4.7% last year. The latest three year period has also seen an excellent 55% overall rise in revenue, aided somewhat by its short-term performance. So we can start by confirming that the company has done a great job of growing revenues over that time.

This is in contrast to the rest of the industry, which is expected to grow by 3.8% over the next year, materially lower than the company's recent medium-term annualised growth rates.

In light of this, it's peculiar that Landsea Green Life Service's P/S sits below the majority of other companies. It looks like most investors are not convinced the company can maintain its recent growth rates.

What Does Landsea Green Life Service's P/S Mean For Investors?

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.

We're very surprised to see Landsea Green Life Service currently trading on a much lower than expected P/S since its recent three-year growth is higher than the wider industry forecast. When we see robust revenue growth that outpaces the industry, we presume that there are notable underlying risks to the company's future performance, which is exerting downward pressure on the P/S ratio. While recent revenue trends over the past medium-term suggest that the risk of a price decline is low, investors appear to perceive a likelihood of revenue fluctuations in the future.

Plus, you should also learn about these 3 warning signs we've spotted with Landsea Green Life Service (including 2 which don't sit too well with us).

If you're unsure about the strength of Landsea Green Life Service'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.