Optimistic Investors Push Redco Healthy Living Company Limited (HKG:2370) Shares Up 28% But Growth Is Lacking

Despite an already strong run, Redco Healthy Living Company Limited (HKG:2370) shares have been powering on, with a gain of 28% in the last thirty days. The last month tops off a massive increase of 129% in the last year.

Even after such a large jump in price, you could still be forgiven for feeling indifferent about Redco Healthy Living's P/S ratio of 0.3x, since the median price-to-sales (or "P/S") ratio for the Real Estate industry in Hong Kong is also close to 0.7x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/S.

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Check out our latest analysis for Redco Healthy Living

How Redco Healthy Living Has Been Performing

As an illustration, revenue has deteriorated at Redco Healthy Living over the last year, which is not ideal at all. It might be that many expect the company to put the disappointing revenue performance behind them over the coming period, which has kept the P/S from falling. If you like the company, you'd at least be hoping this is 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 Redco Healthy Living?

The only time you'd be comfortable seeing a P/S like Redco Healthy Living's is when the company's growth is tracking the industry closely.

Retrospectively, the last year delivered a frustrating 2.7% decrease to the company's top line. That put a dampener on the good run it was having over the longer-term as its three-year revenue growth is still a noteworthy 7.3% in total. Although it's been a bumpy ride, it's still fair to say the revenue growth recently has been mostly respectable for the company.

Comparing the recent medium-term revenue trends against the industry's one-year growth forecast of 5.2% shows it's noticeably less attractive.

In light of this, it's curious that Redco Healthy Living's P/S sits in line with the majority of other companies. 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.

What Does Redco Healthy Living's P/S Mean For Investors?

Redco Healthy Living's stock has a lot of momentum behind it lately, which has brought its P/S level with the rest of the 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.

We've established that Redco Healthy Living'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.

You should always think about risks. Case in point, we've spotted 3 warning signs for Redco Healthy Living you should be aware of, and 2 of them are potentially serious.

If these risks are making you reconsider your opinion on Redco Healthy Living, 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.