More Unpleasant Surprises Could Be In Store For Pacific Legend Group Limited's (HKG:8547) Shares After Tumbling 30%

The Pacific Legend Group Limited (HKG:8547) share price has fared very poorly over the last month, falling by a substantial 30%. Looking at the bigger picture, even after this poor month the stock is up 74% in the last year.

Although its price has dipped substantially, it's still not a stretch to say that Pacific Legend Group's price-to-sales (or "P/S") ratio of 0.3x right now seems quite "middle-of-the-road" compared to the Specialty Retail industry in Hong Kong, where the median P/S ratio is around 0.6x. 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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See our latest analysis for Pacific Legend Group

What Does Pacific Legend Group's Recent Performance Look Like?

For instance, Pacific Legend Group's receding revenue in recent times would have to be some food for thought. Perhaps investors believe the recent revenue performance is enough to keep in line with the industry, which is keeping the P/S from dropping off. If not, then existing shareholders may be a little nervous about the viability of the share price.

How Is Pacific Legend Group's Revenue Growth Trending?

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

Retrospectively, the last year delivered a frustrating 6.7% decrease to the company's top line. Regardless, revenue has managed to lift by a handy 11% in aggregate from three years ago, thanks to the earlier period of growth. So we can start by confirming that the company has generally done a good job of growing revenue over that time, even though it had some hiccups along the way.

This is in contrast to the rest of the industry, which is expected to grow by 49% over the next year, materially higher than the company's recent medium-term annualised growth rates.

With this information, we find it interesting that Pacific Legend Group is trading at a fairly similar P/S compared to the industry. Apparently many investors in the company are less bearish than recent times would indicate and aren't willing to let go of their stock right now. They may be setting themselves up for future disappointment if the P/S falls to levels more in line with recent growth rates.

The Final Word

With its share price dropping off a cliff, the P/S for Pacific Legend Group looks to be in line with the rest of the Specialty Retail industry. 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.

Our examination of Pacific Legend Group revealed its poor three-year revenue trends aren't resulting in a lower P/S as per our expectations, given they look worse than current industry outlook. Right now we are uncomfortable with the P/S as this revenue performance isn't likely to support a more positive sentiment for long. If recent medium-term revenue trends continue, the probability of a share price decline will become quite substantial, placing shareholders at risk.

Before you take the next step, you should know about the 4 warning signs for Pacific Legend Group (2 are a bit concerning!) that we have uncovered.

If these risks are making you reconsider your opinion on Pacific Legend 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.