Sa Sa International Holdings Limited (HKG:178) shareholders that were waiting for something to happen have been dealt a blow with a 25% share price drop in the last month. The recent drop completes a disastrous twelve months for shareholders, who are sitting on a 64% loss during that time.

Even after such a large drop in price, there still wouldn't be many who think Sa Sa International Holdings' price-to-sales (or "P/S") ratio of 0.5x is worth a mention when the median P/S in Hong Kong's Specialty Retail industry is similar at about 0.4x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/S.

What Does Sa Sa International Holdings' P/S Mean For Shareholders?

With revenue growth that's superior to most other companies of late, Sa Sa International Holdings has been doing relatively well. It might be that many expect the strong revenue performance to wane, which has kept the P/S ratio from rising. If the company manages to stay the course, then investors should be rewarded with a share price that matches its revenue figures.

How Is Sa Sa International Holdings' Revenue Growth Trending?

There's an inherent assumption that a company should be matching the industry for P/S ratios like Sa Sa International Holdings' to be considered reasonable.

Retrospectively, the last year delivered an exceptional 22% gain to the company's top line. As a result, it also grew revenue by 13% in total over the last three years. Therefore, it's fair to say the revenue growth recently has been respectable for the company.

Turning to the outlook, the next year should generate growth of 18% as estimated by the four analysts watching the company. Meanwhile, the rest of the industry is forecast to only expand by 15%, which is noticeably less attractive.

In light of this, it's curious that Sa Sa International Holdings' P/S sits in line with the majority of other companies. It may be that most investors aren't convinced the company can achieve future growth expectations.

The Final Word

With its share price dropping off a cliff, the P/S for Sa Sa International Holdings looks to be in line with the rest of the Specialty Retail 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.

Looking at Sa Sa International Holdings' analyst forecasts revealed that its superior revenue outlook isn't giving the boost to its P/S that we would've expected. There could be some risks that the market is pricing in, which is preventing the P/S ratio from matching the positive outlook. However, if you agree with the analysts' forecasts, you may be able to pick up the stock at an attractive price.

A lot of potential risks can sit within a company's balance sheet. You can assess many of the main risks through our free balance sheet analysis for Sa Sa International Holdings with six simple checks.

Of course, profitable companies with a history of great earnings growth are generally safer bets. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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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.