What Shirble Department Store Holdings (China) Limited's (HKG:312) 27% Share Price Gain Is Not Telling You

Shirble Department Store Holdings (China) Limited (HKG:312) shares have had a really impressive month, gaining 27% after a shaky period beforehand. Not all shareholders will be feeling jubilant, since the share price is still down a very disappointing 19% in the last twelve months.

Although its price has surged higher, you could still be forgiven for feeling indifferent about Shirble Department Store Holdings (China)'s P/S ratio of 0.4x, since the median price-to-sales (or "P/S") ratio for the Multiline Retail industry in Hong Kong is also close to 0.3x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/S.

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

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

As an illustration, revenue has deteriorated at Shirble Department Store Holdings (China) over the last year, which is not ideal at all. 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.

We don't have analyst forecasts, but you can see how recent trends are setting up the company for the future by checking out our free report on Shirble Department Store Holdings (China)'s earnings, revenue and cash flow.

How Is Shirble Department Store Holdings (China)'s Revenue Growth Trending?

Shirble Department Store Holdings (China)'s P/S ratio would be typical for a company that's only expected to deliver moderate growth, and importantly, perform in line with 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 1.2%. As a result, revenue from three years ago have also fallen 32% overall. 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 9.1% 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 Shirble Department Store Holdings (China)'s P/S exceeds that of its industry peers. Apparently many investors in the company are way less bearish than recent times would indicate and aren't willing to let go of their stock right now. 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 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. 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.

The fact that Shirble Department Store Holdings (China) 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. If recent medium-term revenue trends continue, it will place shareholders' investments at risk and potential investors in danger of paying an unnecessary premium.

Before you settle on your opinion, we've discovered 3 warning signs for Shirble Department Store Holdings (China) (2 don't sit too well with us!) that you should be aware of.

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.