Lacklustre Performance Is Driving Golden Wheel Tiandi Holdings Company Limited's (HKG:1232) Low P/S

With a price-to-sales (or "P/S") ratio of 0.1x Golden Wheel Tiandi Holdings Company Limited (HKG:1232) may be sending bullish signals at the moment, given that almost half of all the Real Estate companies in Hong Kong have P/S ratios greater than 0.7x and even P/S higher than 3x are not unusual. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's limited.

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See our latest analysis for Golden Wheel Tiandi Holdings

How Golden Wheel Tiandi Holdings Has Been Performing

For instance, Golden Wheel Tiandi Holdings' receding revenue in recent times would have to be some food for thought. Perhaps the market believes the recent revenue performance isn't good enough to keep up the industry, causing the P/S ratio to suffer. Those who are bullish on Golden Wheel Tiandi Holdings will be hoping that this isn't the case so that they can pick up the stock at a lower valuation.

Is There Any Revenue Growth Forecasted For Golden Wheel Tiandi Holdings?

Golden Wheel Tiandi Holdings' P/S ratio would be typical for a company that's only expected to deliver limited growth, and importantly, perform worse than the industry.

In reviewing the last year of financials, we were disheartened to see the company's revenues fell to the tune of 70%. The last three years don't look nice either as the company has shrunk revenue by 67% in aggregate. Accordingly, shareholders would have felt downbeat about the medium-term rates of revenue growth.

In contrast to the company, the rest of the industry is expected to grow by 5.0% over the next year, which really puts the company's recent medium-term revenue decline into perspective.

With this information, we are not surprised that Golden Wheel Tiandi Holdings is trading at a P/S lower than the industry. 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 Final Word

Using the price-to-sales ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

It's no surprise that Golden Wheel Tiandi Holdings maintains its low P/S off the back of its sliding revenue over the medium-term. 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.

We don't want to rain on the parade too much, but we did also find 4 warning signs for Golden Wheel Tiandi Holdings (2 are significant!) that you need to be mindful of.

If you're unsure about the strength of Golden Wheel Tiandi Holdings' 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.