China Ever Grand Financial Leasing Group Co., Ltd. (HKG:379) Not Doing Enough For Some Investors As Its Shares Slump 28%

Unfortunately for some shareholders, the China Ever Grand Financial Leasing Group Co., Ltd. (HKG:379) share price has dived 28% in the last thirty days, prolonging recent pain. Still, a bad month hasn't completely ruined the past year with the stock gaining 27%, which is great even in a bull market.

After such a large drop in price, China Ever Grand Financial Leasing Group's price-to-sales (or "P/S") ratio of 1x might make it look like a buy right now compared to the Diversified Financial industry in Hong Kong, where around half of the companies have P/S ratios above 1.9x and even P/S above 5x are quite common. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/S.

We've discovered 2 warning signs about China Ever Grand Financial Leasing Group. View them for free.

View our latest analysis for China Ever Grand Financial Leasing Group

How China Ever Grand Financial Leasing Group Has Been Performing

China Ever Grand Financial Leasing 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. Those who are bullish on China Ever Grand Financial Leasing Group will be hoping that this isn't the case, so that they can pick up the stock at a lower valuation.

Want the full picture on earnings, revenue and cash flow for the company? Then our free report on China Ever Grand Financial Leasing Group will help you shine a light on its historical performance.

Is There Any Revenue Growth Forecasted For China Ever Grand Financial Leasing Group?

There's an inherent assumption that a company should underperform the industry for P/S ratios like China Ever Grand Financial Leasing Group's to be considered reasonable.

If we review the last year of revenue growth, the company posted a terrific increase of 92%. Despite this strong recent growth, it's still struggling to catch up as its three-year revenue frustratingly shrank by 18% overall. Therefore, it's fair to say the revenue growth recently has been undesirable for the company.

Weighing that medium-term revenue trajectory against the broader industry's one-year forecast for expansion of 27% shows it's an unpleasant look.

With this in mind, we understand why China Ever Grand Financial Leasing Group's P/S is lower than most of its industry peers. Nonetheless, there's no guarantee the P/S has reached a floor yet with revenue going in reverse. There's potential for the P/S to fall to even lower levels if the company doesn't improve its top-line growth.

The Bottom Line On China Ever Grand Financial Leasing Group's P/S

China Ever Grand Financial Leasing Group's recently weak share price has pulled its P/S back below other Diversified Financial companies. 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.

As we suspected, our examination of China Ever Grand Financial Leasing Group revealed its shrinking revenue over the medium-term is contributing to its low P/S, given the industry is set to grow. At this stage investors feel the potential for an improvement in revenue isn't great enough to justify a higher P/S ratio. Given the current circumstances, it seems unlikely that the share price will experience any significant movement in either direction in the near future if recent medium-term revenue trends persist.

You should always think about risks. Case in point, we've spotted 2 warning signs for China Ever Grand Financial Leasing Group you should be aware of, and 1 of them makes us a bit uncomfortable.

If these risks are making you reconsider your opinion on China Ever Grand Financial Leasing 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.