Despite an already strong run, Pacific Basin Shipping Limited (HKG:2343) shares have been powering on, with a gain of 30% in the last thirty days. Unfortunately, despite the strong performance over the last month, the full year gain of 8.4% isn't as attractive.

Even after such a large jump in price, it's still not a stretch to say that Pacific Basin Shipping's price-to-sales (or "P/S") ratio of 0.9x right now seems quite "middle-of-the-road" compared to the Shipping industry in Hong Kong, seeing as it matches the P/S ratio of the wider industry. 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 Pacific Basin Shipping Has Been Performing

Recent times have been more advantageous for Pacific Basin Shipping as its revenue hasn't fallen as much as the rest of the industry. One possibility is that the P/S ratio is moderate because investors think this relatively better revenue performance might be about to evaporate. You'd much rather the company continue improving its revenue if you still believe in the business. In saying that, existing shareholders probably aren't too pessimistic about the share price if the company's revenue continues outplaying the industry.

What Are Revenue Growth Metrics Telling Us About The P/S?

Pacific Basin Shipping'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.

In reviewing the last year of financials, we were disheartened to see the company's revenues fell to the tune of 30%. Still, the latest three year period has seen an excellent 56% overall rise in revenue, in spite of its unsatisfying short-term performance. Although it's been a bumpy ride, it's still fair to say the revenue growth recently has been more than adequate for the company.

Turning to the outlook, the next three years should generate growth of 2.9% each year as estimated by the eight analysts watching the company. Meanwhile, the rest of the industry is forecast to expand by 2.9% per annum, which is not materially different.

In light of this, it's understandable that Pacific Basin Shipping's P/S sits in line with the majority of other companies. It seems most investors are expecting to see average future growth and are only willing to pay a moderate amount for the stock.

The Bottom Line On Pacific Basin Shipping's P/S

Its shares have lifted substantially and now Pacific Basin Shipping's P/S is back within range of the industry median. Generally, our preference is to limit the use of the price-to-sales ratio to establishing what the market thinks about the overall health of a company.

Our look at Pacific Basin Shipping'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.

There are also other vital risk factors to consider before investing and we've discovered 2 warning signs for Pacific Basin Shipping that you should be aware of.

If companies with solid past earnings growth is up your alley, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

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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.