More Unpleasant Surprises Could Be In Store For Macau Legend Development Limited's (HKG:1680) Shares After Tumbling 26%
Macau Legend Development Limited (HKG:1680) shares have had a horrible month, losing 26% after a relatively good period beforehand. For any long-term shareholders, the last month ends a year to forget by locking in a 76% share price decline.
Although its price has dipped substantially, you could still be forgiven for feeling indifferent about Macau Legend Development's P/S ratio of 0.3x, since the median price-to-sales (or "P/S") ratio for the Hospitality industry in Hong Kong is also close to 0.8x. 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.
Check out our latest analysis for Macau Legend Development
How Has Macau Legend Development Performed Recently?
The revenue growth achieved at Macau Legend Development over the last year would be more than acceptable for most companies. One possibility is that the P/S is moderate because investors think this respectable revenue growth might not be enough to outperform the broader industry in the near future. Those who are bullish on Macau Legend Development will be hoping that this isn't the case, so that they can pick up the stock at a lower valuation.
Although there are no analyst estimates available for Macau Legend 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 Macau Legend Development's Revenue Growth Trending?
Macau Legend Development's P/S ratio would be typical for a company that's only expected to deliver moderate growth, and importantly, perform in line with the industry.
If we review the last year of revenue growth, the company posted a terrific increase of 29%. However, this wasn't enough as the latest three year period has seen the company endure a nasty 34% drop in revenue 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 13% over the next year, which really puts the company's recent medium-term revenue decline into perspective.
With this in mind, we find it worrying that Macau Legend Development's P/S exceeds that of its industry peers. It seems most investors are ignoring the recent poor growth rate and are hoping for a turnaround in the company's business prospects. 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.
What We Can Learn From Macau Legend Development's P/S?
Following Macau Legend Development's share price tumble, its P/S is just clinging on to the industry median P/S. Typically, we'd caution against reading too much into price-to-sales ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.
The fact that Macau Legend Development 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. When we see revenue heading backwards in the context of growing industry forecasts, it'd make sense to expect a possible share price decline on the horizon, sending the moderate P/S lower. If recent medium-term revenue trends continue, it will place shareholders' investments at risk and potential investors in danger of paying an unnecessary premium.
There are also other vital risk factors to consider and we've discovered 3 warning signs for Macau Legend Development (1 is a bit unpleasant!) that you should be aware of before investing here.
If these risks are making you reconsider your opinion on Macau Legend Development, 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.