What You Can Learn From Nine Dragons Paper (Holdings) Limited's (HKG:2689) P/S After Its 25% Share Price Crash

The Nine Dragons Paper (Holdings) Limited (HKG:2689) share price has softened a substantial 25% over the previous 30 days, handing back much of the gains the stock has made lately. Instead of being rewarded, shareholders who have already held through the last twelve months are now sitting on a 24% share price drop.

Even after such a large drop in price, you could still be forgiven for feeling indifferent about Nine Dragons Paper (Holdings)'s P/S ratio of 0.2x, since the median price-to-sales (or "P/S") ratio for the Forestry industry in Hong Kong is also close to 0.6x. While this might not raise any eyebrows, if the P/S ratio is not justified investors could be missing out on a potential opportunity or ignoring looming disappointment.

View our latest analysis for Nine Dragons Paper (Holdings)

How Nine Dragons Paper (Holdings) Has Been Performing

With revenue growth that's superior to most other companies of late, Nine Dragons Paper (Holdings) has been doing relatively well. It might be that many expect the strong revenue performance to wane, which has kept 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.

Is There Some Revenue Growth Forecasted For Nine Dragons Paper (Holdings)?

Nine Dragons Paper (Holdings)'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 worthy increase of 4.9%. However, this wasn't enough as the latest three year period has seen an unpleasant 3.4% overall drop in revenue. So unfortunately, we have to acknowledge that the company has not done a great job of growing revenue over that time.

Shifting to the future, estimates from the eleven analysts covering the company suggest revenue should grow by 9.6% per annum over the next three years. With the industry predicted to deliver 8.7% growth per year, the company is positioned for a comparable revenue result.

With this information, we can see why Nine Dragons Paper (Holdings) is trading at a fairly similar P/S to the industry. Apparently shareholders are comfortable to simply hold on while the company is keeping a low profile.

The Bottom Line On Nine Dragons Paper (Holdings)'s P/S

With its share price dropping off a cliff, the P/S for Nine Dragons Paper (Holdings) looks to be in line with the rest of the Forestry 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.

A Nine Dragons Paper (Holdings)'s P/S seems about right to us given the knowledge that analysts are forecasting a revenue outlook that is similar to the Forestry industry. Right now shareholders are comfortable with the P/S as they are quite confident future revenue won't throw up any surprises. If all things remain constant, the possibility of a drastic share price movement remains fairly remote.

You always need to take note of risks, for example - Nine Dragons Paper (Holdings) has 1 warning sign we think you should be aware of.

If these risks are making you reconsider your opinion on Nine Dragons Paper (Holdings), 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.