Despite an already strong run, South Manganese Investment Limited (HKG:1091) shares have been powering on, with a gain of 54% in the last thirty days. Longer-term shareholders would be thankful for the recovery in the share price since it's now virtually flat for the year after the recent bounce.
Even after such a large jump in price, there still wouldn't be many who think South Manganese Investment's price-to-sales (or "P/S") ratio of 0.1x is worth a mention when the median P/S in Hong Kong's Metals and Mining industry is similar at about 0.5x. Although, it's not wise to simply ignore the P/S without explanation as investors may be disregarding a distinct opportunity or a costly mistake.
Check out our latest analysis for South Manganese Investment
What Does South Manganese Investment's Recent Performance Look Like?
The recent revenue growth at South Manganese Investment would have to be considered satisfactory if not spectacular. It might be that many expect the respectable revenue performance to only match most other companies over the coming period, which has kept the P/S from rising. If not, then at least existing shareholders probably aren't too pessimistic about the future direction of the share price.
Although there are no analyst estimates available for South Manganese Investment, take a look at this free data-rich visualisation to see how the company stacks up on earnings, revenue and cash flow.How Is South Manganese Investment's Revenue Growth Trending?
There's an inherent assumption that a company should be matching the industry for P/S ratios like South Manganese Investment's to be considered reasonable.
Taking a look back first, we see that the company managed to grow revenues by a handy 6.9% last year. Pleasingly, revenue has also lifted 292% in aggregate from three years ago, partly thanks to the last 12 months of growth. Therefore, it's fair to say the revenue growth recently has been superb for the company.
This is in contrast to the rest of the industry, which is expected to grow by 12% over the next year, materially lower than the company's recent medium-term annualised growth rates.
In light of this, it's curious that South Manganese Investment'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.
The Final Word
Its shares have lifted substantially and now South Manganese Investment's P/S is back within range of the industry median. 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.
To our surprise, South Manganese Investment revealed its three-year revenue trends aren't contributing to its P/S as much as we would have predicted, given they look better than current industry expectations. 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. 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.
Plus, you should also learn about these 3 warning signs we've spotted with South Manganese Investment (including 2 which shouldn't be ignored).
If these risks are making you reconsider your opinion on South Manganese Investment, 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.