The King Of Catering (Global) Holdings Ltd. (HKG:8619) share price has softened a substantial 33% over the previous 30 days, handing back much of the gains the stock has made lately.    Regardless, last month's decline is barely a blip on the stock's price chart as it has gained a monstrous 703% in the last year.  

Although its price has dipped substantially, when almost half of the companies in Hong Kong's Professional Services industry have price-to-sales ratios (or "P/S") below 0.6x, you may still consider King Of Catering (Global) Holdings as a stock not worth researching with its 3.1x P/S ratio.   Although, it's not wise to just take the P/S at face value as there may be an explanation why it's so lofty.  

SEHK:8619 Price to Sales Ratio vs Industry February 23rd 2024

What Does King Of Catering (Global) Holdings' P/S Mean For Shareholders?

The recent revenue growth at King Of Catering (Global) Holdings would have to be considered satisfactory if not spectacular.   One possibility is that the P/S ratio is high because investors think this good revenue growth will be enough to outperform the broader industry in the near future.  You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.    

Although there are no analyst estimates available for King Of Catering (Global) Holdings, take a look at this free data-rich visualisation to see how the company stacks up on earnings, revenue and cash flow.  

How Is King Of Catering (Global) Holdings' Revenue Growth Trending?  

There's an inherent assumption that a company should far outperform the industry for P/S ratios like King Of Catering (Global) Holdings' to be considered reasonable.  

Taking a look back first, we see that the company managed to grow revenues by a handy 5.4% last year.   This was backed up an excellent period prior to see revenue up by 43% in total over the last three years.  So we can start by confirming that the company has done a great job of growing revenues over that time.  

Comparing the recent medium-term revenue trends against the industry's one-year growth forecast of 18% shows it's noticeably less attractive.

With this information, we find it concerning that King Of Catering (Global) Holdings is trading at a P/S higher than the industry.  Apparently many investors in the company are way more bullish than recent times would indicate and aren't willing to let go of their stock at any price.  Only the boldest would assume these prices are sustainable as a continuation of recent revenue trends is likely to weigh heavily on the share price eventually.  

What Does King Of Catering (Global) Holdings' P/S Mean For Investors?

Even after such a strong price drop, King Of Catering (Global) Holdings' P/S still exceeds the industry median significantly.      We'd say the price-to-sales ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

Our examination of King Of Catering (Global) Holdings revealed its poor three-year revenue trends aren't detracting from the P/S as much as we though, given they look worse than current industry expectations.  When we see slower than industry revenue growth but an elevated P/S, there's considerable risk of the share price declining, sending the P/S lower.  Unless the recent medium-term conditions improve markedly, it's very challenging to accept these the share price as being reasonable.    

We don't want to rain on the parade too much, but we did also find 3 warning signs for King Of Catering (Global) Holdings (1 can't be ignored!) that you need to be mindful of.  

If these risks are making you reconsider your opinion on King Of Catering (Global) Holdings, 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.