Petro-king Oilfield Services Limited (HKG:2178) shareholders would be excited to see that the share price has had a great month, posting a 31% gain and recovering from prior weakness. Unfortunately, the gains of the last month did little to right the losses of the last year with the stock still down 14% over that time.

Even after such a large jump in price, you could still be forgiven for feeling indifferent about Petro-king Oilfield Services' P/S ratio of 0.4x, since the median price-to-sales (or "P/S") ratio for the Energy Services industry in Hong Kong is also close to 0.3x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/S.

Check out our latest analysis for Petro-king Oilfield Services

What Does Petro-king Oilfield Services' Recent Performance Look Like?

With revenue growth that's exceedingly strong of late, Petro-king Oilfield Services has been doing very well. It might be that many expect the strong revenue performance to wane, which has kept the share price, and thus the P/S ratio, from rising. If that doesn't eventuate, then existing shareholders have reason to be feeling optimistic about the future direction of the share price.

How Is Petro-king Oilfield Services' Revenue Growth Trending?

There's an inherent assumption that a company should be matching the industry for P/S ratios like Petro-king Oilfield Services' to be considered reasonable.

Retrospectively, the last year delivered an exceptional 91% gain to the company's top line. However, this wasn't enough as the latest three year period has seen the company endure a nasty 34% drop in revenue in aggregate. Accordingly, shareholders would have felt downbeat about the medium-term rates of revenue growth.

In contrast to the company, the rest of the industry is expected to grow by 14% over the next year, which really puts the company's recent medium-term revenue decline into perspective.

In light of this, it's somewhat alarming that Petro-king Oilfield Services' P/S sits in line with the majority of other companies. Apparently many investors in the company are way less bearish than recent times would indicate and aren't willing to let go of their stock right now. There's a good chance existing shareholders are setting themselves up for future disappointment if the P/S falls to levels more in line with the recent negative growth rates.

What We Can Learn From Petro-king Oilfield Services' P/S?

Its shares have lifted substantially and now Petro-king Oilfield Services' P/S is back within range of the industry median. 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.

Our look at Petro-king Oilfield Services revealed its shrinking revenues over the medium-term haven't impacted the P/S as much as we anticipated, given the industry is set to grow. When we see revenue heading backwards in the context of growing industry forecasts, it'd make sense to expect a possible share price decline on the horizon, sending the moderate P/S lower. If recent medium-term revenue trends continue, it will place shareholders' investments at risk and potential investors in danger of paying an unnecessary premium.

Having said that, be aware Petro-king Oilfield Services is showing 2 warning signs in our investment analysis, you should know about.

If these risks are making you reconsider your opinion on Petro-king Oilfield Services, 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.