Risks Still Elevated At These Prices As Pacific Legend Group Limited (HKG:8547) Shares Dive 39%

Pacific Legend Group Limited (HKG:8547) shares have had a horrible month, losing 39% after a relatively good period beforehand. For any long-term shareholders, the last month ends a year to forget by locking in a 60% share price decline.

Even after such a large drop in price, you could still be forgiven for feeling indifferent about Pacific Legend Group's P/S ratio of 0.1x, since the median price-to-sales (or "P/S") ratio for the Specialty Retail industry in Hong Kong is also close to 0.3x. Although, it's not wise to simply ignore the P/S without explanation as investors may be disregarding a distinct opportunity or a costly mistake.

View our latest analysis for Pacific Legend Group

What Does Pacific Legend Group's P/S Mean For Shareholders?

Pacific Legend Group has been doing a decent job lately as it's been growing revenue at a reasonable pace. Perhaps the expectation moving forward is that the revenue growth will track in line with the wider industry for the near term, which has kept the P/S subdued. If not, then at least existing shareholders probably aren't too pessimistic about the future direction 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 Pacific Legend Group's earnings, revenue and cash flow.

How Is Pacific Legend Group's Revenue Growth Trending?

In order to justify its P/S ratio, Pacific Legend Group would need to produce growth that's similar to the industry.

Retrospectively, the last year delivered a decent 6.3% gain to the company's revenues. Revenue has also lifted 25% in aggregate from three years ago, partly thanks to the last 12 months of growth. Accordingly, shareholders would have probably been satisfied with the medium-term rates of revenue growth.

Comparing that to the industry, which is predicted to deliver 11% growth in the next 12 months, the company's momentum is weaker, based on recent medium-term annualised revenue results.

With this in mind, we find it intriguing that Pacific Legend Group's P/S is comparable to that of its industry peers. Apparently many investors in the company are less bearish than recent times would indicate and aren't willing to let go of their stock right now. They may be setting themselves up for future disappointment if the P/S falls to levels more in line with recent growth rates.

What Does Pacific Legend Group's P/S Mean For Investors?

Following Pacific Legend Group's share price tumble, its P/S is just clinging on to the industry median 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 Pacific Legend Group's average P/S is a bit surprising since its recent three-year growth is lower than the wider industry forecast. Right now we are uncomfortable with the P/S as this revenue performance isn't likely to support a more positive sentiment for long. Unless the recent medium-term conditions improve, it's hard to accept the current share price as fair value.

We don't want to rain on the parade too much, but we did also find 4 warning signs for Pacific Legend Group (2 are potentially serious!) that you need to be mindful of.

If these risks are making you reconsider your opinion on Pacific Legend Group, explore our interactive list of high quality stocks to get an idea of what else is out there.

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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.