Bossini International Holdings Limited's (HKG:592) 25% Share Price Plunge Could Signal Some Risk

To the annoyance of some shareholders, Bossini International Holdings Limited (HKG:592) shares are down a considerable 25% in the last month, which continues a horrid run for the company. For any long-term shareholders, the last month ends a year to forget by locking in a 76% share price decline.

Even after such a large drop in price, there still wouldn't be many who think Bossini International Holdings' price-to-sales (or "P/S") ratio of 0.7x is worth a mention when the median P/S in Hong Kong's Specialty Retail industry is similar at about 0.4x. 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.

See our latest analysis for Bossini International Holdings

What Does Bossini International Holdings' Recent Performance Look Like?

For example, consider that Bossini International Holdings' financial performance has been poor lately as its revenue has been in decline. It might be that many expect the company to put the disappointing revenue performance behind them over the coming period, which has kept the P/S from falling. If you like the company, you'd at least be hoping this is the case so that you could potentially pick up some stock while it's not quite in favour.

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 Bossini International Holdings' earnings, revenue and cash flow.

How Is Bossini International Holdings' Revenue Growth Trending?

There's an inherent assumption that a company should be matching the industry for P/S ratios like Bossini International Holdings' to be considered reasonable.

Retrospectively, the last year delivered a frustrating 15% 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 46% 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 16% 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 Bossini International Holdings' 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. 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.

The Key Takeaway

With its share price dropping off a cliff, the P/S for Bossini International Holdings looks to be in line with the rest of the Specialty Retail industry. 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 Bossini International 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.

Plus, you should also learn about these 3 warning signs we've spotted with Bossini International Holdings (including 1 which makes us a bit uncomfortable).

Of course, profitable companies with a history of great earnings growth are generally safer bets. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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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.