Home Control International Limited (HKG:1747) shares have had a horrible month, losing 28% after a relatively good period beforehand. For any long-term shareholders, the last month ends a year to forget by locking in a 52% share price decline.

In spite of the heavy fall in price, there still wouldn't be many who think Home Control International's price-to-sales (or "P/S") ratio of 0.2x is worth a mention when the median P/S in Hong Kong's Consumer Durables industry is similar at about 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.

How Home Control International Has Been Performing

Home Control International has been struggling lately as its revenue has declined faster than most other companies. It might be that many expect the dismal revenue performance to revert back to industry averages soon, which has kept the P/S from falling. So while you could say the stock is cheap, investors will be looking for improvement before they see it as good value. If not, then existing shareholders may be a little nervous about the viability of the share price.

How Is Home Control International's Revenue Growth Trending?

The only time you'd be comfortable seeing a P/S like Home Control International's is when the company's growth is tracking the industry closely.

Taking a look back first, the company's revenue growth last year wasn't something to get excited about as it posted a disappointing decline of 23%. As a result, revenue from three years ago have also fallen 34% overall. Therefore, it's fair to say the revenue growth recently has been undesirable for the company.

Looking ahead now, revenue is anticipated to slump, contracting by 4.8% during the coming year according to the sole analyst following the company. That's not great when the rest of the industry is expected to grow by 35%.

With this in consideration, we think it doesn't make sense that Home Control International's P/S is closely matching its industry peers. It seems most investors are hoping for a turnaround in the company's business prospects, but the analyst cohort is not so confident this will happen. There's a good chance these shareholders are setting themselves up for future disappointment if the P/S falls to levels more in line with the negative growth outlook.

The Bottom Line On Home Control International's P/S

Following Home Control International's share price tumble, its P/S is just clinging on to the industry median P/S. 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.

Our check of Home Control International's analyst forecasts revealed that its outlook for shrinking revenue isn't bringing down its P/S as much as we would have predicted. With this in mind, we don't feel the current P/S is justified as declining revenues are unlikely to support a more positive sentiment for long. If we consider the revenue outlook, the P/S seems to indicate that potential investors may be paying a premium for the stock.

And what about other risks? Every company has them, and we've spotted 3 warning signs for Home Control International (of which 2 are potentially serious!) you should know about.

If these risks are making you reconsider your opinion on Home Control International, 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.