What Shirble Department Store Holdings (China) Limited's (HKG:312) 28% Share Price Gain Is Not Telling You

Despite an already strong run, Shirble Department Store Holdings (China) Limited (HKG:312) shares have been powering on, with a gain of 28% in the last thirty days. Not all shareholders will be feeling jubilant, since the share price is still down a very disappointing 29% in the last twelve months.

Even after such a large jump in price, there still wouldn't be many who think Shirble Department Store Holdings (China)'s price-to-sales (or "P/S") ratio of 0.4x is worth a mention when the median P/S in Hong Kong's Multiline Retail industry is similar at about 0.3x. While this might not raise any eyebrows, if the P/S ratio is not justified investors could be missing out on a potential opportunity or ignoring looming disappointment.

Check out our latest analysis for Shirble Department Store Holdings (China)

How Has Shirble Department Store Holdings (China) Performed Recently?

For instance, Shirble Department Store Holdings (China)'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.

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

Is There Some Revenue Growth Forecasted For Shirble Department Store Holdings (China)?

The only time you'd be comfortable seeing a P/S like Shirble Department Store Holdings (China)'s is when the company's growth is tracking the industry closely.

In reviewing the last year of financials, we were disheartened to see the company's revenues fell to the tune of 1.2%. As a result, revenue from three years ago have also fallen 32% overall. 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 10% 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 Shirble Department Store Holdings (China) is trading at a fairly similar P/S compared to 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. There's a good chance existing shareholders are setting themselves up for future disappointment if the P/S falls to levels more in line with the recent negative growth rates.

What Does Shirble Department Store Holdings (China)'s P/S Mean For Investors?

Its shares have lifted substantially and now Shirble Department Store Holdings (China)'s P/S is back within range of the industry median. Generally, our preference is to limit the use of the price-to-sales ratio to establishing what the market thinks about the overall health of a company.

Our look at Shirble Department Store Holdings (China) revealed its shrinking revenues over the medium-term haven't impacted the P/S as much as we anticipated, given 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 and we've discovered 3 warning signs for Shirble Department Store Holdings (China) (2 can't be ignored!) that you should be aware of before investing here.

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.