Beijing Media Corporation Limited's (HKG:1000) Shares Climb 53% But Its Business Is Yet to Catch Up

Beijing Media Corporation Limited (HKG:1000) shareholders have had their patience rewarded with a 53% share price jump in the last month. The last 30 days bring the annual gain to a very sharp 37%.

In spite of the firm bounce in price, you could still be forgiven for feeling indifferent about Beijing Media's P/S ratio of 0.5x, since the median price-to-sales (or "P/S") ratio for the Media industry in Hong Kong is also close to 0.9x. 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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Check out our latest analysis for Beijing Media

How Beijing Media Has Been Performing

For instance, Beijing Media's receding revenue in recent times would have to be some food for thought. One possibility is that the P/S is moderate because investors think the company might still do enough to be in line with the broader industry in the near future. If not, then existing shareholders may be a little nervous about the viability of the share price.

Is There Some Revenue Growth Forecasted For Beijing Media?

In order to justify its P/S ratio, Beijing Media would need to produce growth that's similar to the industry.

Retrospectively, the last year delivered a frustrating 1.3% decrease to the company's top line. Regardless, revenue has managed to lift by a handy 12% in aggregate from three years ago, thanks to the earlier period of growth. Accordingly, while they would have preferred to keep the run going, shareholders would be roughly satisfied with the medium-term rates of revenue growth.

Comparing the recent medium-term revenue trends against the industry's one-year growth forecast of 7.7% shows it's noticeably less attractive.

With this information, we find it interesting that Beijing Media is trading at a fairly similar P/S compared to the industry. It seems most investors are ignoring the fairly limited recent growth rates and are willing to pay up for exposure to the stock. They may be setting themselves up for future disappointment if the P/S falls to levels more in line with recent growth rates.

The Key Takeaway

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

We've established that Beijing Media's average P/S is a bit surprising since its recent three-year growth is lower than the wider industry forecast. 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. If recent medium-term revenue trends continue, the probability of a share price decline will become quite substantial, placing shareholders at risk.

We don't want to rain on the parade too much, but we did also find 2 warning signs for Beijing Media that you need to be mindful of.

If you're unsure about the strength of Beijing Media's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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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.