Home Control International Limited (HKG:1747) shareholders that were waiting for something to happen have been dealt a blow with a 28% share price drop in the last month. The recent drop completes a disastrous twelve months for shareholders, who are sitting on a 52% loss during that time.

Although its price has dipped substantially, it's still not a stretch to say that Home Control International's price-to-sales (or "P/S") ratio of 0.2x right now seems quite "middle-of-the-road" compared to the Consumer Durables industry in Hong Kong, where the median P/S ratio is around 0.5x. 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.

See our latest analysis for Home Control International

What Does Home Control International's P/S Mean For Shareholders?

Home Control International has been struggling lately as its revenue has declined faster than most other companies. One possibility is that the P/S is moderate because investors think the company's revenue trend will eventually fall in line with most others in the industry. You'd much rather the company improve its revenue if you still believe in the business. Or at the very least, you'd be hoping it doesn't keep underperforming if your plan is to pick up some stock while it's not in favour.

How Is Home Control International's Revenue Growth Trending?

The only time you'd be comfortable seeing a P/S like Home Control International's is when the company's growth is tracking the industry closely.

Retrospectively, the last year delivered a frustrating 23% decrease to the company's top line. This means it has also seen a slide in revenue over the longer-term as revenue is down 34% in total over the last three years. Therefore, it's fair to say the revenue growth recently has been undesirable for the company.

Shifting to the future, estimates from the one analyst covering the company suggest revenue growth is heading into negative territory, declining 4.8% over the next year. Meanwhile, the broader industry is forecast to expand by 34%, which paints a poor picture.

With this information, we find it concerning that Home Control International is trading at a fairly similar P/S compared to the industry. It seems most investors are hoping for a turnaround in the company's business prospects, but the analyst cohort is not so confident this will happen. Only the boldest would assume these prices are sustainable as these declining revenues are likely to weigh on the share price eventually.

The Bottom Line On Home Control International's P/S

With its share price dropping off a cliff, the P/S for Home Control International looks to be in line with the rest of the Consumer Durables 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.

While Home Control International's P/S isn't anything out of the ordinary for companies in the industry, we didn't expect it given forecasts of revenue decline. When we see a gloomy outlook like this, our immediate thoughts are that the share price is at risk of declining, negatively impacting P/S. If we consider the revenue outlook, the P/S seems to indicate that potential investors may be paying a premium for the stock.

Don't forget that there may be other risks. For instance, we've identified 3 warning signs for Home Control International (2 are a bit unpleasant) you should be aware of.

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

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.