China Sandi Holdings Limited's (HKG:910) Shares Bounce 108% But Its Business Still Trails The Industry

China Sandi Holdings Limited (HKG:910) shareholders would be excited to see that the share price has had a great month, posting a 108% gain and recovering from prior weakness. Still, the 30-day jump doesn't change the fact that longer term shareholders have seen their stock decimated by the 69% share price drop in the last twelve months.

Even after such a large jump in price, China Sandi Holdings may still be sending buy signals at present with its price-to-sales (or "P/S") ratio of 0.1x, considering almost half of all companies in the Real Estate industry in Hong Kong have P/S ratios greater than 0.7x and even P/S higher than 3x aren't out of the ordinary. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's limited.

View our latest analysis for China Sandi Holdings

How China Sandi Holdings Has Been Performing

As an illustration, revenue has deteriorated at China Sandi Holdings over the last year, which is not ideal at all. Perhaps the market believes the recent revenue performance isn't good enough to keep up the industry, causing the P/S ratio to suffer. Those who are bullish on China Sandi Holdings will be hoping that this isn't the case so that they can pick up the stock at a lower valuation.

Want the full picture on earnings, revenue and cash flow for the company? Then our free report on China Sandi Holdings will help you shine a light on its historical performance.

Do Revenue Forecasts Match The Low P/S Ratio?

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

Retrospectively, the last year delivered a frustrating 52% decrease to the company's top line. This means it has also seen a slide in revenue over the longer-term as revenue is down 42% in total over the last three years. Therefore, it's fair to say the revenue growth recently has been undesirable for the company.

Comparing that to the industry, which is predicted to deliver 4.9% growth in the next 12 months, the company's downward momentum based on recent medium-term revenue results is a sobering picture.

With this information, we are not surprised that China Sandi Holdings is trading at a P/S lower than the industry. Nonetheless, there's no guarantee the P/S has reached a floor yet with revenue going in reverse. 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

The latest share price surge wasn't enough to lift China Sandi Holdings' P/S close to the industry median. 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.

As we suspected, our examination of China Sandi Holdings revealed its shrinking revenue over the medium-term is contributing to its low P/S, given the industry is set to grow. Right now shareholders are accepting the low P/S as they concede future revenue probably won't provide any pleasant surprises either. Given the current circumstances, it seems unlikely that the share price will experience any significant movement in either direction in the near future if recent medium-term revenue trends persist.

It is also worth noting that we have found 4 warning signs for China Sandi Holdings (3 are significant!) that you need to take into consideration.

It's important to make sure you look for a great company, not just the first idea you come across. So if growing profitability aligns with your idea of a great company, take a peek at this free list of interesting companies with strong recent earnings growth (and a low P/E).

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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.