Hidili Industry International Development Limited (HKG:1393) Shares Fly 34% But Investors Aren't Buying For Growth
Hidili Industry International Development Limited (HKG:1393) shares surged 34% recently, with a 24% annual gain. Despite this, the company's low price-to-sales (P/S) ratio of 0.2x raises concerns about future growth, as it lags behind industry peers. Revenue growth has been inconsistent, with a 44% decline over three years, leading to skepticism about sustained performance. Analysts predict industry growth of 1.8% in the next year, contrasting with Hidili's downward trend. Investors may face challenges in share price stability if revenue issues persist, alongside three identified warning signs for the company.
Hidili Industry International Development Limited (HKG:1393) shares have had a really impressive month, gaining 34% after a shaky period beforehand. Taking a wider view, although not as strong as the last month, the full year gain of 24% is also fairly reasonable.
Even after such a large jump in price, Hidili Industry International Development may still be sending buy signals at present with its price-to-sales (or "P/S") ratio of 0.2x, considering almost half of all companies in the Oil and Gas industry in Hong Kong have P/S ratios greater than 0.9x and even P/S higher than 3x aren't out of the ordinary. However, the P/S might be low for a reason and it requires further investigation to determine if it's justified.
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View our latest analysis for Hidili Industry International Development
What Does Hidili Industry International Development's P/S Mean For Shareholders?
Revenue has risen firmly for Hidili Industry International Development recently, which is pleasing to see. Perhaps the market is expecting this acceptable revenue performance to take a dive, which has kept the P/S suppressed. If you like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's out of favour.
Although there are no analyst estimates available for Hidili Industry International Development, take a look at this free data-rich visualisation to see how the company stacks up on earnings, revenue and cash flow.
How Is Hidili Industry International Development's Revenue Growth Trending?
There's an inherent assumption that a company should underperform the industry for P/S ratios like Hidili Industry International Development's to be considered reasonable.
Taking a look back first, we see that the company grew revenue by an impressive 16% last year. However, this wasn't enough as the latest three year period has seen the company endure a nasty 44% drop in revenue in aggregate. So unfortunately, we have to acknowledge that the company has not done a great job of growing revenues over that time.
Comparing that to the industry, which is predicted to deliver 1.8% 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 understandable that Hidili Industry International Development's P/S would sit below the majority of other companies. However, we think shrinking revenues are unlikely to lead to a stable P/S over the longer term, which could set up shareholders for future disappointment. Even just maintaining these prices could be difficult to achieve as recent revenue trends are already weighing down the shares.
What Does Hidili Industry International Development's P/S Mean For Investors?
Despite Hidili Industry International Development's share price climbing recently, its P/S still lags most other companies. 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 Hidili Industry International Development confirms that the company's shrinking revenue over the past medium-term is a key factor in its low price-to-sales ratio, given the industry is projected to grow. Right now shareholders are accepting the low P/S as they concede future revenue probably won't provide any pleasant surprises either. 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.
It is also worth noting that we have found 3 warning signs for Hidili Industry International Development (1 can't be ignored!) that you need to take into consideration.
If strong companies turning a profit tickle your fancy, then you'll want to check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).
