Cautious Investors Not Rewarding Ever Harvest Group Holdings Limited's (HKG:1549) Performance Completely

Ever Harvest Group Holdings Limited's (HKG:1549) price-to-sales (or "P/S") ratio of 0.3x may look like a pretty appealing investment opportunity when you consider close to half the companies in the Shipping industry in Hong Kong have P/S ratios greater than 0.8x. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/S.

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View our latest analysis for Ever Harvest Group Holdings

How Ever Harvest Group Holdings Has Been Performing

The recent revenue growth at Ever Harvest Group Holdings would have to be considered satisfactory if not spectacular. Perhaps the market believes the recent revenue performance might fall short of industry figures in the near future, leading to a reduced P/S. Those who are bullish on Ever Harvest Group Holdings will be hoping that this isn't the case, so that they can pick up the stock at a lower valuation.

Although there are no analyst estimates available for Ever Harvest Group Holdings, take a look at this free data-rich visualisation to see how the company stacks up on earnings, revenue and cash flow.

Is There Any Revenue Growth Forecasted For Ever Harvest Group Holdings?

There's an inherent assumption that a company should underperform the industry for P/S ratios like Ever Harvest Group Holdings' to be considered reasonable.

Taking a look back first, we see that the company managed to grow revenues by a handy 2.8% last year. However, this wasn't enough as the latest three year period has seen an unpleasant 18% overall drop in revenue. So unfortunately, we have to acknowledge that the company has not done a great job of growing revenue over that time.

Weighing that medium-term revenue trajectory against the broader industry's one-year forecast for a contraction of 8.3% shows the industry is even less attractive on an annualised basis.

With this information, it's perhaps strange but not a major surprise that Ever Harvest Group Holdings is trading at a lower P/S in comparison. Even if the company's recent growth rates continue outperforming the industry, shrinking revenues are unlikely to lead to a stable P/S long-term. There is still potential for the P/S to fall to even lower levels if the company doesn't improve its top-line growth, which would be difficult to do with the current industry outlook.

What We Can Learn From Ever Harvest Group Holdings' P/S?

While the price-to-sales ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of revenue expectations.

As we've mentioned, Ever Harvest Group Holdings' lower than industry P/S comes as a bit of a surprise due to its recent three-year revenue not being as bad as the forecasts for a struggling industry. When we see better than average revenue growth but a lower than average P/S, we must assume that potential risks are what might be placing significant pressure on the P/S ratio. The most obvious risk is that its revenue trajectory may not keep outperforming under these tough industry conditions. While recent medium-term revenue trends suggest that the risk of a price decline is low, investors appear to perceive a possibility of revenue volatility in the future.

There are also other vital risk factors to consider and we've discovered 2 warning signs for Ever Harvest Group Holdings (1 doesn't sit too well with us!) that you should be aware of before investing here.

If companies with solid past earnings growth is up your alley, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

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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.