The China Shenghai Group Limited (HKG:1676) share price has done very well over the last month, posting an excellent gain of 39%. Looking back a bit further, it's encouraging to see the stock is up 83% in the last year.
Even after such a large jump in price, you could still be forgiven for feeling indifferent about China Shenghai Group's P/S ratio of 0.9x, since the median price-to-sales (or "P/S") ratio for the Food industry in Hong Kong is also close to 0.5x. 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.
SEHK:1676 Price to Sales Ratio vs Industry February 28th 2024
How China Shenghai Group Has Been Performing
Recent times have been quite advantageous for China Shenghai Group as its revenue has been rising very briskly. The P/S is probably moderate because investors think this strong revenue growth might not be enough to outperform the broader industry in the near future. If that doesn't eventuate, then existing shareholders have reason to be feeling optimistic about the future direction of the share price.
Want the full picture on earnings, revenue and cash flow for the company? Then our free report on China Shenghai Group will help you shine a light on its historical performance.
Is There Some Revenue Growth Forecasted For China Shenghai Group?
The only time you'd be comfortable seeing a P/S like China Shenghai Group's is when the company's growth is tracking the industry closely.
Taking a look back first, we see that the company grew revenue by an impressive 127% last year. The latest three year period has also seen an excellent 32% overall rise in revenue, aided by its short-term performance. So we can start by confirming that the company has done a great job of growing revenue over that time.
Comparing that recent medium-term revenue trajectory with the industry's one-year growth forecast of 6.7% shows it's noticeably more attractive.
In light of this, it's curious that China Shenghai Group's P/S sits in line with the majority of other companies. It may be that most investors are not convinced the company can maintain its recent growth rates.
What Does China Shenghai Group's P/S Mean For Investors?
Its shares have lifted substantially and now China Shenghai Group's P/S is back within range of the industry median. While the price-to-sales ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of revenue expectations.
We've established that China Shenghai Group currently trades on a lower than expected P/S since its recent three-year growth is higher than the wider industry forecast. When we see strong revenue with faster-than-industry growth, we can only assume potential risks are what might be placing pressure on the P/S ratio. At least the risk of a price drop looks to be subdued if recent medium-term revenue trends continue, but investors seem to think future revenue could see some volatility.
We don't want to rain on the parade too much, but we did also find 4 warning signs for China Shenghai Group (1 is a bit concerning!) that you need to be mindful of.
If these risks are making you reconsider your opinion on China Shenghai Group, 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.