Hao Tian International Construction Investment Group Limited (HKG:1341)’s 26% share price drop may indicate some risks.

Hao Tian International Construction Investment Group Limited (HKG:1341)’s share price has returned the equivalent of 26% in the last month, quite a reversal of its recent strong performance. The good news is that the stock shined like a diamond last year, rising 241%.

Despite the significant price decline, Hao Tian International Construction Investment Group is still considered, given that the price-to-sales ratio (P/S) of about half of the companies in Hong Kong’s trade and distribution industry is below 0.6x. You may do so. With a P/S multiple of 37.9x, it’s a stock to avoid completely. However, there may be a reason why the P/S is so high, and further research is needed to determine if it’s justified.

Check out our latest analysis for Hao Tian International Construction Investment Group.

Hao Tian International Construction Investment Group’s performance

For example, Hao Tian International Construction Investment Group’s recent earnings pullback should give you food for thought. Many people probably expect the company to continue to outperform most other companies over the coming period, which may be keeping it from collapsing. If you don’t hope so, you will end up paying a very high price for no particular reason.

There are no analyst forecasts available for Hao Tian International Construction Investment Group, but take a look at this. free Data-rich visualizations show how a company’s revenue, revenue, and cash flow stack up.

What is Hao Tian International Construction Investment Group’s earnings growth trend?

Hao Tian International Construction Investment Group’s P/S ratio is typical of a company that is expected to deliver very strong growth and, importantly, outperform its industry by far.

When I reviewed last year’s financials, I was disappointed to see that our revenue declined by 9.5%. As a result, his overall revenue from three years ago also fell by 12%. Therefore, shareholders would have been disappointed with the medium-term earnings growth rate.

When we weigh this medium-term earnings trajectory against the industry-wide one-year growth forecast of 3.5%, we find that to be an unpleasant outlook.

With this in mind, we are concerned that Hao Tian International Construction Investment Group’s P&L is higher than that of its peers. Apparently, many of the company’s investors are much more bullish than recent expectations and are unwilling to exit the stock at any price. If the P/S falls to a level commensurate with the recent negative growth rate, it’s very likely that existing shareholders are preparing for future disappointment.

What can we learn from Hao Tian International Construction Investment Group’s P/S?

Hao Tian International Construction Investment Group’s stock price may have fallen, but its P/S is still high. The power of the price-to-sales ratio is not primarily a valuation tool, but rather a gauge of current investor sentiment and future expectations.

Our research on Hao Tian International Construction Investment Group shows that the P/S is not as low as we expected, even if earnings contract in the medium term, as the industry is expected to grow. It became clear. When we see earnings pull back and fall short of industry estimates, we feel there is a very real possibility of a share price decline and P/S moving back into reasonable territory. Unless the recent medium-term situation improves, it is not wrong to expect that the company’s shareholders will continue to have difficult times going forward.

Before you form your own opinion, we found the following: 3 warning signs for Hao Tian International Construction Investment Group What you need to know.

If you are… I don’t understand the strength of Hao Tian International Construction Investment Group’s business.Why not explore our interactive list of stocks with solid business fundamentals for other companies you may have missed?

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts using only unbiased methodologies, and the articles are not intended as financial advice. This is not a recommendation to buy or sell any stock, and does not take into account your objectives or financial situation. We aim to provide long-term, focused analysis based on fundamental data. Note that our analysis may not factor in the latest announcements or qualitative material from price-sensitive companies. Simply Wall St has no position in any stocks mentioned.