Risks Still Elevated At These Prices As Ming Yuan Cloud Group Holdings Limited (HKG:909) Shares Dive 26%

Ming Yuan Cloud Group Holdings Limited (HKG:909) shares have had a horrible month, losing 26% after a relatively good period beforehand. The recent drop completes a disastrous twelve months for shareholders, who are sitting on a 52% loss during that time.

In spite of the heavy fall in price, you could still be forgiven for thinking Ming Yuan Cloud Group Holdings is a stock not worth researching with a price-to-sales ratios (or "P/S") of 2.1x, considering almost half the companies in Hong Kong's Software industry have P/S ratios below 1.2x. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's as high as it is.

Check out our latest analysis for Ming Yuan Cloud Group Holdings

What Does Ming Yuan Cloud Group Holdings' Recent Performance Look Like?

While the industry has experienced revenue growth lately, Ming Yuan Cloud Group Holdings' revenue has gone into reverse gear, which is not great. It might be that many expect the dour revenue performance to recover substantially, which has kept the P/S from collapsing. If not, then existing shareholders may be extremely nervous about the viability of the share price.

Keen to find out how analysts think Ming Yuan Cloud Group Holdings' future stacks up against the industry? In that case, our free report is a great place to start.

Is There Enough Revenue Growth Forecasted For Ming Yuan Cloud Group Holdings?

In order to justify its P/S ratio, Ming Yuan Cloud Group Holdings would need to produce impressive growth in excess of the industry.

Retrospectively, the last year delivered a frustrating 9.7% decrease to the company's top line. The last three years don't look nice either as the company has shrunk revenue by 3.8% in aggregate. Therefore, it's fair to say the revenue growth recently has been undesirable for the company.

Looking ahead now, revenue is anticipated to climb by 4.8% per year during the coming three years according to the eleven analysts following the company. That's shaping up to be materially lower than the 19% per year growth forecast for the broader industry.

In light of this, it's alarming that Ming Yuan Cloud Group Holdings' P/S sits above the majority of other companies. Apparently many investors in the company are way more bullish than analysts indicate and aren't willing to let go of their stock at any price. Only the boldest would assume these prices are sustainable as this level of revenue growth is likely to weigh heavily on the share price eventually.

The Key Takeaway

Ming Yuan Cloud Group Holdings' P/S remain high even after its stock plunged. It's argued the price-to-sales ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

Despite analysts forecasting some poorer-than-industry revenue growth figures for Ming Yuan Cloud Group Holdings, this doesn't appear to be impacting the P/S in the slightest. When we see a weak revenue outlook, we suspect the share price faces a much greater risk of declining, bringing back down the P/S figures. This places shareholders' investments at significant risk and potential investors in danger of paying an excessive premium.

It is also worth noting that we have found 1 warning sign for Ming Yuan Cloud Group Holdings that you need to take into consideration.

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.