With a median price-to-sales (or "P/S") ratio of close to 1x in the Telecom industry in Hong Kong, you could be forgiven for feeling indifferent about PCCW Limited's (HKG:8) P/S ratio of 0.9x. Although, it's not wise to simply ignore the P/S without explanation as investors may be disregarding a distinct opportunity or a costly mistake.

See our latest analysis for PCCW

How Has PCCW Performed Recently?

PCCW's revenue growth of late has been pretty similar to most other companies. Perhaps the market is expecting future revenue performance to show no drastic signs of changing, justifying the P/S being at current levels. If you like the company, you'd be hoping this can at least be maintained so that you could pick up some stock while it's not quite in favour.

How Is PCCW's Revenue Growth Trending?

In order to justify its P/S ratio, PCCW would need to produce growth that's similar to the industry.

Retrospectively, the last year delivered a decent 5.8% gain to the company's revenues. Still, lamentably revenue has fallen 7.1% in aggregate from three years ago, which is disappointing. So unfortunately, we have to acknowledge that the company has not done a great job of growing revenue over that time.

Looking ahead now, revenue is anticipated to climb by 6.0% during the coming year according to the four analysts following the company. That's shaping up to be similar to the 6.4% growth forecast for the broader industry.

With this in mind, it makes sense that PCCW's P/S is closely matching its industry peers. Apparently shareholders are comfortable to simply hold on while the company is keeping a low profile.

The Bottom Line On PCCW's 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 look at PCCW's revenue growth estimates show that its P/S is about what we expect, as both metrics follow closely with the industry averages. At this stage investors feel the potential for an improvement or deterioration in revenue isn't great enough to push P/S in a higher or lower direction. Unless these conditions change, they will continue to support the share price at these levels.

It's always necessary to consider the ever-present spectre of investment risk. We've identified 2 warning signs with PCCW (at least 1 which is significant), and understanding these should be part of your investment process.

If you're unsure about the strength of PCCW's business, why not explore our interactive list of stocks with solid business fundamentals for some 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 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.