It's Down 28% But Guangzhou R&F Properties Co., Ltd. (HKG:2777) Could Be Riskier Than It Looks

The Guangzhou R&F Properties Co., Ltd. (HKG:2777) share price has softened a substantial 28% over the previous 30 days, handing back much of the gains the stock has made lately. Still, a bad month hasn't completely ruined the past year with the stock gaining 25%, which is great even in a bull market.

Although its price has dipped substantially, you could still be forgiven for feeling indifferent about Guangzhou R&F Properties' P/S ratio of 0.1x, since the median price-to-sales (or "P/S") ratio for the Real Estate industry in Hong Kong is also close to 0.6x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/S.

Check out our latest analysis for Guangzhou R&F Properties

How Guangzhou R&F Properties Has Been Performing

With revenue growth that's inferior to most other companies of late, Guangzhou R&F Properties has been relatively sluggish. Perhaps the market is expecting future revenue performance to lift, which has kept the P/S from declining. You'd really hope so, otherwise you're paying a relatively elevated price for a company with this sort of growth profile.

Keen to find out how analysts think Guangzhou R&F Properties' future stacks up against the industry? In that case, our free report is a great place to start.

Do Revenue Forecasts Match The P/S Ratio?

In order to justify its P/S ratio, Guangzhou R&F Properties would need to produce growth that's similar to the industry.

If we review the last year of revenue, the company posted a result that saw barely any deviation from a year ago. Whilst it's an improvement, it wasn't enough to get the company out of the hole it was in, with revenue down 63% overall from three years ago. Accordingly, shareholders would have felt downbeat about the medium-term rates of revenue growth.

Turning to the outlook, the next year should generate growth of 14% as estimated by the one analyst watching the company. Meanwhile, the rest of the industry is forecast to only expand by 7.0%, which is noticeably less attractive.

In light of this, it's curious that Guangzhou R&F Properties' P/S sits in line with the majority of other companies. Apparently some shareholders are skeptical of the forecasts and have been accepting lower selling prices.

The Bottom Line On Guangzhou R&F Properties' P/S

With its share price dropping off a cliff, the P/S for Guangzhou R&F Properties looks to be in line with the rest of the Real Estate industry. 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've established that Guangzhou R&F Properties currently trades on a lower than expected P/S since its forecasted revenue growth is higher than the wider industry. When we see a strong revenue outlook, with growth outpacing the industry, we can only assume potential uncertainty around these figures are what might be placing slight pressure on the P/S ratio. At least the risk of a price drop looks to be subdued, but investors seem to think future revenue could see some volatility.

Having said that, be aware Guangzhou R&F Properties is showing 3 warning signs in our investment analysis, you should know about.

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.