Improved Revenues Required Before Greentown China Holdings Limited (HKG:3900) Shares Find Their Feet

You may think that with a price-to-sales (or "P/S") ratio of 0.2x Greentown China Holdings Limited (HKG:3900) 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.

Trump has pledged to "unleash" American oil and gas and these 15 US stocks have developments that are poised to benefit.

Check out our latest analysis for Greentown China Holdings

What Does Greentown China Holdings' Recent Performance Look Like?

There hasn't been much to differentiate Greentown China Holdings' and the industry's retreating revenue lately. Perhaps the market is expecting future revenue performance to deteriorate further, which has kept the P/S suppressed. So while you could say the stock is cheap, investors will be looking for improvement before they see it as good value. In saying that, existing shareholders may feel hopeful about the share price if the company's revenue continues tracking the industry.

Want the full picture on analyst estimates for the company? Then our free report on Greentown China Holdings will help you uncover what's on the horizon.

How Is Greentown China Holdings' Revenue Growth Trending?

In order to justify its P/S ratio, Greentown China Holdings would need to produce sluggish growth that's trailing the industry.

Taking a look back first, the company's revenue growth last year wasn't something to get excited about as it posted a disappointing decline of 1.1%. That put a dampener on the good run it was having over the longer-term as its three-year revenue growth is still a noteworthy 10% in total. So we can start by confirming that the company has generally done a good job of growing revenue over that time, even though it had some hiccups along the way.

Looking ahead now, revenue is anticipated to slump, contracting by 0.8% during the coming year according to the eleven analysts following the company. Meanwhile, the broader industry is forecast to expand by 4.6%, which paints a poor picture.

With this in consideration, we find it intriguing that Greentown China Holdings' P/S is closely matching its industry peers. However, shrinking revenues are unlikely to lead to a stable P/S over the longer term. There's potential for the P/S to fall to even lower levels if the company doesn't improve its top-line growth.

The Key Takeaway

It's argued the price-to-sales ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

As we suspected, our examination of Greentown China Holdings' analyst forecasts revealed that its outlook for shrinking revenue is contributing to its low P/S. At this stage investors feel the potential for an improvement in revenue isn't great enough to justify a higher P/S ratio. It's hard to see the share price rising strongly in the near future under these circumstances.

You should always think about risks. Case in point, we've spotted 2 warning signs for Greentown China Holdings you should be aware of.

If you're unsure about the strength of Greentown China Holdings' business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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

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.