Peking University Resources (Holdings) Company Limited (HKG:618) May Have Run Too Fast Too Soon With Recent 26% Price Plummet

Peking University Resources (Holdings) Company Limited (HKG:618) shares have had a horrible month, losing 26% after a relatively good period beforehand. For any long-term shareholders, the last month ends a year to forget by locking in a 55% share price decline.

Even after such a large drop in price, you could still be forgiven for feeling indifferent about Peking University Resources (Holdings)'s P/S ratio of 0.4x, since the median price-to-sales (or "P/S") ratio for the Real Estate industry in Hong Kong is also close to 0.6x. Although, it's not wise to simply ignore the P/S without explanation as investors may be disregarding a distinct opportunity or a costly mistake.

View our latest analysis for Peking University Resources (Holdings)

What Does Peking University Resources (Holdings)'s P/S Mean For Shareholders?

For instance, Peking University Resources (Holdings)'s receding revenue in recent times would have to be some food for thought. One possibility is that the P/S is moderate because investors think the company might still do enough to be in line with the broader industry in the near future. If not, then existing shareholders may be a little nervous about the viability of the share price.

Although there are no analyst estimates available for Peking University Resources (Holdings), take a look at this free data-rich visualisation to see how the company stacks up on earnings, revenue and cash flow.

How Is Peking University Resources (Holdings)'s Revenue Growth Trending?

There's an inherent assumption that a company should be matching the industry for P/S ratios like Peking University Resources (Holdings)'s to be considered reasonable.

In reviewing the last year of financials, we were disheartened to see the company's revenues fell to the tune of 72%. This means it has also seen a slide in revenue over the longer-term as revenue is down 86% in total over the last three years. So unfortunately, we have to acknowledge that the company has not done a great job of growing revenue over that time.

Comparing that to the industry, which is predicted to deliver 4.1% growth in the next 12 months, the company's downward momentum based on recent medium-term revenue results is a sobering picture.

With this in mind, we find it worrying that Peking University Resources (Holdings)'s P/S exceeds that of its industry peers. It seems most investors are ignoring the recent poor growth rate and are hoping for a turnaround in the company's business prospects. Only the boldest would assume these prices are sustainable as a continuation of recent revenue trends is likely to weigh on the share price eventually.

What Does Peking University Resources (Holdings)'s P/S Mean For Investors?

Following Peking University Resources (Holdings)'s share price tumble, its P/S is just clinging on to the industry median P/S. While the price-to-sales ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of revenue expectations.

The fact that Peking University Resources (Holdings) currently trades at a P/S on par with the rest of the industry is surprising to us since its recent revenues have been in decline over the medium-term, all while the industry is set to grow. When we see revenue heading backwards in the context of growing industry forecasts, it'd make sense to expect a possible share price decline on the horizon, sending the moderate P/S lower. Unless the recent medium-term conditions improve markedly, investors will have a hard time accepting the share price as fair value.

There are also other vital risk factors to consider before investing and we've discovered 3 warning signs for Peking University Resources (Holdings) that you should be aware of.

If companies with solid past earnings growth is up your alley, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

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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.

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