Despite an already strong run, Zhidao International (Holdings) Limited (HKG:1220) shares have been powering on, with a gain of 152% in the last thirty days. The annual gain comes to 137% following the latest surge, making investors sit up and take notice.
Although its price has surged higher, you could still be forgiven for feeling indifferent about Zhidao International (Holdings)'s P/S ratio of 0.4x, since the median price-to-sales (or "P/S") ratio for the Construction 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.
See our latest analysis for Zhidao International (Holdings)
SEHK:1220 Price to Sales Ratio vs Industry December 18th 2023
What Does Zhidao International (Holdings)'s Recent Performance Look Like?
Zhidao International (Holdings) certainly has been doing a great job lately as it's been growing its revenue at a really rapid pace. Perhaps the market is expecting future revenue performance to taper off, which has kept the P/S from rising. If you like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's not quite in favour.
Although there are no analyst estimates available for Zhidao International (Holdings), take a look at this free data-rich visualisation to see how the company stacks up on earnings, revenue and cash flow.
What Are Revenue Growth Metrics Telling Us About The P/S?
The only time you'd be comfortable seeing a P/S like Zhidao International (Holdings)'s is when the company's growth is tracking the industry closely.
If we review the last year of revenue growth, the company posted a terrific increase of 206%. Pleasingly, revenue has also lifted 300% in aggregate from three years ago, thanks to the last 12 months of growth. Therefore, it's fair to say the revenue growth recently has been superb for the company.
When compared to the industry's one-year growth forecast of 13%, the most recent medium-term revenue trajectory is noticeably more alluring
In light of this, it's curious that Zhidao International (Holdings)'s P/S sits in line with the majority of other companies. Apparently some shareholders believe the recent performance is at its limits and have been accepting lower selling prices.
What Does Zhidao International (Holdings)'s P/S Mean For Investors?
Zhidao International (Holdings) appears to be back in favour with a solid price jump bringing its P/S back in line with other companies in the industry Typically, we'd caution against reading too much into price-to-sales ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.
We didn't quite envision Zhidao International (Holdings)'s P/S sitting in line with the wider industry, considering the revenue growth over the last three-year is higher than the current industry outlook. It'd be fair to assume that potential risks the company faces could be the contributing factor to the lower than expected P/S. It appears some are indeed anticipating revenue instability, because the persistence of these recent medium-term conditions would normally provide a boost to the share price.
We don't want to rain on the parade too much, but we did also find 2 warning signs for Zhidao International (Holdings) (1 is potentially serious!) that you need to be mindful of.
It's important to make sure you look for a great company, not just the first idea you come across. So if growing profitability aligns with your idea of a great company, take a peek at this free list of interesting companies with strong recent earnings growth (and a low P/E).
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