Jiahua Stores Holdings Limited's (HKG:602) Popularity With Investors Under Threat As Stock Sinks 33%

The Jiahua Stores Holdings Limited (HKG:602) share price has softened a substantial 33% over the previous 30 days, handing back much of the gains the stock has made lately. Looking at the bigger picture, even after this poor month the stock is up 92% in the last year.

In spite of the heavy fall in price, you could still be forgiven for feeling indifferent about Jiahua Stores Holdings' P/S ratio of 0.1x, since the median price-to-sales (or "P/S") ratio for the Multiline Retail industry in Hong Kong is also close to 0.5x. While this might not raise any eyebrows, if the P/S ratio is not justified investors could be missing out on a potential opportunity or ignoring looming disappointment.

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See our latest analysis for Jiahua Stores Holdings

What Does Jiahua Stores Holdings' P/S Mean For Shareholders?

For instance, Jiahua Stores Holdings' receding revenue in recent times would have to be some food for thought. 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 not, then existing shareholders may be a little nervous about the viability of the share price.

Although there are no analyst estimates available for Jiahua Stores Holdings, take a look at this free data-rich visualisation to see how the company stacks up on earnings, revenue and cash flow.

How Is Jiahua Stores Holdings' Revenue Growth Trending?

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

Retrospectively, the last year delivered a frustrating 13% decrease to the company's top line. This means it has also seen a slide in revenue over the longer-term as revenue is down 2.0% in total over the last three years. So unfortunately, we have to acknowledge that the company has not done a great job of growing revenue over that time.

Comparing that to the industry, which is predicted to deliver 8.4% growth in the next 12 months, the company's downward momentum based on recent medium-term revenue results is a sobering picture.

In light of this, it's somewhat alarming that Jiahua Stores Holdings' P/S sits in line with the majority of other companies. Apparently many investors in the company are way less bearish than recent times would indicate and aren't willing to let go of their stock right now. There's a good chance existing shareholders are setting themselves up for future disappointment if the P/S falls to levels more in line with the recent negative growth rates.

The Bottom Line On Jiahua Stores Holdings' P/S

Jiahua Stores Holdings' plummeting stock price has brought its P/S back to a similar region as the rest of the industry. It's argued the price-to-sales ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

The fact that Jiahua Stores Holdings currently trades at a P/S on par with the rest of the industry is surprising to us since its recent revenues have been in decline over the medium-term, all while the industry is set to grow. Even though it matches the industry, we're uncomfortable with the current P/S ratio, as this dismal revenue performance is unlikely to support a more positive sentiment for long. Unless the the circumstances surrounding the recent medium-term improve, it wouldn't be wrong to expect a a difficult period ahead for the company's shareholders.

Having said that, be aware Jiahua Stores Holdings is showing 3 warning signs in our investment analysis, and 2 of those are significant.

If these risks are making you reconsider your opinion on Jiahua Stores Holdings, explore our interactive list of high quality stocks to get an idea of what else is out there.