China CBM Group Company Limited (HKG:8270) shareholders won't be pleased to see that the share price has had a very rough month, dropping 30% and undoing the prior period's positive performance. The recent drop completes a disastrous twelve months for shareholders, who are sitting on a 57% loss during that time.
Even after such a large drop in price, you could still be forgiven for feeling indifferent about China CBM Group's P/S ratio of 1x, since the median price-to-sales (or "P/S") ratio for the Oil and Gas industry in Hong Kong is about the same. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/S.
View our latest analysis for China CBM Group
SEHK:8270 Price to Sales Ratio vs Industry January 28th 2024
How China CBM Group Has Been Performing
As an illustration, revenue has deteriorated at China CBM Group 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 not, then existing shareholders may be a little nervous about the viability of the share price.
Want the full picture on earnings, revenue and cash flow for the company? Then our free report on China CBM Group will help you shine a light on its historical performance.
Is There Some Revenue Growth Forecasted For China CBM Group?
In order to justify its P/S ratio, China CBM Group would need to produce growth that's similar to the industry.
Retrospectively, the last year delivered a frustrating 21% decrease to the company's top line. However, a few very strong years before that means that it was still able to grow revenue by an impressive 59% in total over the last three years. Although it's been a bumpy ride, it's still fair to say the revenue growth recently has been more than adequate for the company.
This is in contrast to the rest of the industry, which is expected to grow by 0.6% over the next year, materially lower than the company's recent medium-term annualised growth rates.
With this information, we find it interesting that China CBM Group is trading at a fairly similar P/S compared to the industry. Apparently some shareholders believe the recent performance is at its limits and have been accepting lower selling prices.
The Key Takeaway
China CBM Group's plummeting stock price has brought its P/S back to a similar region as the rest of the industry. 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.
To our surprise, China CBM Group revealed its three-year revenue trends aren't contributing to its P/S as much as we would have predicted, given they look better than current industry expectations. There could be some unobserved threats to revenue preventing the P/S ratio from matching this positive performance. While recent revenue trends over the past medium-term suggest that the risk of a price decline is low, investors appear to see the likelihood of revenue fluctuations in the future.
We don't want to rain on the parade too much, but we did also find 5 warning signs for China CBM Group that you need to be mindful of.
If these risks are making you reconsider your opinion on China CBM 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.