Risks Still Elevated At These Prices As Logory Logistics Technology Co., Ltd. (HKG:2482) Shares Dive 30%

To the annoyance of some shareholders, Logory Logistics Technology Co., Ltd. (HKG:2482) shares are down a considerable 30% in the last month, which continues a horrid run for the company. Looking back over the past twelve months the stock has been a solid performer regardless, with a gain of 16%.

Even after such a large drop in price, there still wouldn't be many who think Logory Logistics Technology's price-to-sales (or "P/S") ratio of 0.1x is worth a mention when the median P/S in Hong Kong's Logistics industry is similar at about 0.2x. 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.

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See our latest analysis for Logory Logistics Technology

How Logory Logistics Technology Has Been Performing

Logory Logistics Technology certainly has been doing a great job lately as it's been growing its revenue at a really rapid pace. The P/S is probably moderate because investors think this strong revenue growth might not be enough to outperform the broader industry in the near future. If that doesn't eventuate, then existing shareholders have reason to be feeling optimistic 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 Logory Logistics Technology's earnings, revenue and cash flow.

How Is Logory Logistics Technology's Revenue Growth Trending?

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

Retrospectively, the last year delivered an exceptional 34% gain to the company's top line. The latest three year period has also seen a 20% overall rise in revenue, aided extensively by its short-term performance. So we can start by confirming that the company has actually done a good job of growing revenue over that time.

Comparing the recent medium-term revenue trends against the industry's one-year growth forecast of 12% shows it's noticeably less attractive.

With this information, we find it interesting that Logory Logistics Technology is trading at a fairly similar P/S compared to the industry. It seems most investors are ignoring the fairly limited recent growth rates and are willing to pay up for exposure to the stock. They may be setting themselves up for future disappointment if the P/S falls to levels more in line with recent growth rates.

The Key Takeaway

Logory Logistics Technology's plummeting stock price has brought its P/S back to a similar region as the rest of the industry. Generally, our preference is to limit the use of the price-to-sales ratio to establishing what the market thinks about the overall health of a company.

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. Unless the recent medium-term conditions improve, it's hard to accept the current share price as fair value.

It is also worth noting that we have found 1 warning sign for Logory Logistics Technology that you need to take into consideration.

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.