Milan Station Holdings Limited's (HKG:1150) Popularity With Investors Under Threat As Stock Sinks 26%

The Milan Station Holdings Limited (HKG:1150) share price has softened a substantial 26% over the previous 30 days, handing back much of the gains the stock has made lately. The good news is that in the last year, the stock has shone bright like a diamond, gaining 120%.

Although its price has dipped substantially, when almost half of the companies in Hong Kong's Specialty Retail industry have price-to-sales ratios (or "P/S") below 0.5x, you may still consider Milan Station Holdings as a stock not worth researching with its 2.7x P/S ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly elevated P/S.

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See our latest analysis for Milan Station Holdings

How Milan Station Holdings Has Been Performing

For instance, Milan Station Holdings' receding revenue in recent times would have to be some food for thought. It might be that many expect the company to still outplay most other companies over the coming period, which has kept the P/S from collapsing. If not, then existing shareholders may be quite nervous about the viability of the share price.

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

How Is Milan Station Holdings' Revenue Growth Trending?

The only time you'd be truly comfortable seeing a P/S as steep as Milan Station Holdings' is when the company's growth is on track to outshine the industry decidedly.

Retrospectively, the last year delivered a frustrating 27% decrease to the company's top line. The last three years don't look nice either as the company has shrunk revenue by 61% in aggregate. Accordingly, shareholders would have felt downbeat about the medium-term rates of revenue growth.

In contrast to the company, the rest of the industry is expected to grow by 41% over the next year, which really puts the company's recent medium-term revenue decline into perspective.

With this information, we find it concerning that Milan Station Holdings is trading at a P/S higher than the industry. 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 heavily on the share price eventually.

What We Can Learn From Milan Station Holdings' P/S?

A significant share price dive has done very little to deflate Milan Station Holdings' very lofty P/S. 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 Milan Station Holdings currently trades on a much higher than expected P/S since its recent revenues have been in decline over the medium-term. When we see revenue heading backwards and underperforming the industry forecasts, we feel the possibility of the share price declining is very real, bringing the P/S back into the realm of reasonability. Unless the the circumstances surrounding the recent medium-term improve, it wouldn't be wrong to expect a a difficult period ahead for the company's shareholders.

Before you take the next step, you should know about the 3 warning signs for Milan Station Holdings (2 shouldn't be ignored!) that we have uncovered.

If you're unsure about the strength of Milan Station Holdings' 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.