Investors Don't See Light At End Of Pan Hong Holdings Group Limited's (SGX:P36) Tunnel

With a price-to-sales (or "P/S") ratio of 0.7x Pan Hong Holdings Group Limited (SGX:P36) may be sending bullish signals at the moment, given that almost half of all the Real Estate companies in Singapore have P/S ratios greater than 2x and even P/S higher than 6x are not unusual. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/S.

View our latest analysis for Pan Hong Holdings Group

How Pan Hong Holdings Group Has Been Performing

Pan Hong Holdings Group certainly has been doing a great job lately as it's been growing its revenue at a really rapid pace. It might be that many expect the strong revenue performance to degrade substantially, which has repressed the P/S ratio. 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 out of favour.

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

Is There Any Revenue Growth Forecasted For Pan Hong Holdings Group?

The only time you'd be truly comfortable seeing a P/S as low as Pan Hong Holdings Group's is when the company's growth is on track to lag the industry.

Taking a look back first, we see that the company's revenues underwent some rampant growth over the last 12 months. However, this wasn't enough as the latest three year period has seen the company endure a nasty 74% drop in revenue in aggregate. Accordingly, shareholders would have felt downbeat about the medium-term rates of revenue growth.

Weighing that medium-term revenue trajectory against the broader industry's one-year forecast for a contraction of 1.0% shows the industry is more attractive on an annualised basis regardless.

With this information, it's not too hard to see why Pan Hong Holdings Group is trading at a lower P/S in comparison. However, when revenue shrink rapidly P/S often shrinks too, which could set up shareholders for future disappointment regardless. Even just maintaining these prices will be difficult to achieve as recent revenue trends are already weighing down the shares heavily.

The Final Word

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.

As we suspected, our examination of Pan Hong Holdings Group revealed its sharp three-year contraction in revenue is contributing to its low P/S, given the industry is set to shrink less severely. At this stage investors feel the potential for an improvement in revenue isn't great enough to justify a higher P/S ratio. Although, we would be concerned whether the company can even maintain its medium-term level of performance under these tough industry conditions. In the meantime, unless the company's relative performance improves, the share price will hit a barrier around these levels.

You should always think about risks. Case in point, we've spotted 3 warning signs for Pan Hong Holdings Group you should be aware of, and 2 of them are a bit unpleasant.

If these risks are making you reconsider your opinion on Pan Hong Holdings Group, explore our interactive list of high quality stocks to get an idea of what else is out there.

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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.