Logory Logistics Technology Co., Ltd.'s (HKG:2482) 31% Share Price Plunge Could Signal Some Risk

The Logory Logistics Technology Co., Ltd. (HKG:2482) share price has softened a substantial 31% over the previous 30 days, handing back much of the gains the stock has made lately. Looking at the bigger picture, even after this poor month the stock is up 51% in the last year.

Although its price has dipped substantially, you could still be forgiven for feeling indifferent about Logory Logistics Technology's P/S ratio of 0.2x, since the median price-to-sales (or "P/S") ratio for the Logistics industry in Hong Kong is about the same. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/S.

This technology could replace computers: discover the 20 stocks are working to make quantum computing a reality.

See our latest analysis for Logory Logistics Technology

What Does Logory Logistics Technology's P/S Mean For Shareholders?

With revenue growth that's exceedingly strong of late, Logory Logistics Technology has been doing very well. It might be that many expect the strong revenue performance to wane, which has kept the share price, and thus the P/S ratio, from rising. If you like the company, you'd be hoping this isn't 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 Logory Logistics Technology's earnings, revenue and cash flow.

What Are Revenue Growth Metrics Telling Us About The P/S?

Logory Logistics Technology'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.

If we review the last year of revenue growth, the company posted a terrific increase of 34%. As a result, it also grew revenue by 20% in total over the last three years. So we can start by confirming that the company has actually done a good job of growing revenue over that time.

Comparing that to the industry, which is predicted to deliver 9.7% growth in the next 12 months, the company's momentum is weaker, based on recent medium-term annualised revenue results.

With this information, we find it interesting that Logory Logistics Technology is trading at a fairly similar P/S compared to the industry. 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. Maintaining these prices will be difficult to achieve as a continuation of recent revenue trends is likely to weigh down the shares eventually.

What Does Logory Logistics Technology's P/S Mean For Investors?

Logory Logistics Technology's plummeting stock price has brought its P/S back to a similar region as the rest of the industry. 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.

Our examination of Logory Logistics Technology revealed its poor three-year revenue trends aren't resulting in a lower P/S as per our expectations, given they look worse than current industry outlook. When we see weak revenue with slower than industry growth, we suspect the share price is at risk of declining, bringing the P/S back in line with expectations. If recent medium-term revenue trends continue, the probability of a share price decline will become quite substantial, placing shareholders at risk.

A lot of potential risks can sit within a company's balance sheet. Take a look at our free balance sheet analysis for Logory Logistics Technology with six simple checks on some of these key factors.

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.