What XiDeLang Holdings Ltd's (KLSE:XDL) 33% Share Price Gain Is Not Telling You

XiDeLang Holdings Ltd (KLSE:XDL) shareholders have had their patience rewarded with a 33% share price jump in the last month. Not all shareholders will be feeling jubilant, since the share price is still down a very disappointing 33% in the last twelve months.

Although its price has surged higher, there still wouldn't be many who think XiDeLang Holdings' price-to-sales (or "P/S") ratio of 0.1x is worth a mention when the median P/S in Malaysia's Luxury industry is similar at about 0.6x. 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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View our latest analysis for XiDeLang Holdings

What Does XiDeLang Holdings' Recent Performance Look Like?

Revenue has risen firmly for XiDeLang Holdings recently, which is pleasing to see. Perhaps the market is expecting future revenue performance to only keep up with the broader industry, which has keeping the P/S in line with expectations. If that doesn't eventuate, then existing shareholders probably aren't too pessimistic about the future direction of the share price.

Want the full picture on earnings, revenue and cash flow for the company? Then our free report on XiDeLang Holdings will help you shine a light on its historical performance.

Is There Some Revenue Growth Forecasted For XiDeLang Holdings?

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

Retrospectively, the last year delivered an exceptional 19% gain to the company's top line. The latest three year period has also seen a 23% overall rise in revenue, aided extensively by its short-term performance. Accordingly, shareholders would have probably been satisfied with the medium-term rates of revenue growth.

This is in contrast to the rest of the industry, which is expected to grow by 33% over the next year, materially higher than the company's recent medium-term annualised growth rates.

In light of this, it's curious that XiDeLang Holdings' P/S sits in line with the majority of other companies. 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 We Can Learn From XiDeLang Holdings' P/S?

XiDeLang Holdings appears to be back in favour with a solid price jump bringing its P/S back in line with other companies in the industry 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.

Our examination of XiDeLang Holdings 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 there is a significant improvement in the company's medium-term performance, it will be difficult to prevent the P/S ratio from declining to a more reasonable level.

Having said that, be aware XiDeLang Holdings is showing 3 warning signs in our investment analysis, you should know about.

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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.