Ying Hai Group Holdings Company Limited (HKG:8668) shares have had a really impressive month, gaining 38% after a shaky period beforehand. Unfortunately, the gains of the last month did little to right the losses of the last year with the stock still down 11% over that time.
Following the firm bounce in price, when almost half of the companies in Hong Kong's Hospitality industry have price-to-sales ratios (or "P/S") below 0.7x, you may consider Ying Hai Group Holdings as a stock probably not worth researching with its 1.7x P/S ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the elevated P/S.
View our latest analysis for Ying Hai Group Holdings
What Does Ying Hai Group Holdings' P/S Mean For Shareholders?
With revenue growth that's exceedingly strong of late, Ying Hai Group Holdings has been doing very well. The P/S ratio is probably high because investors think this strong revenue growth will be enough to outperform the broader industry in the near future. If not, then existing shareholders might be a little nervous about the viability of the share price.
We don't have analyst forecasts, but you can see how recent trends are setting up the company for the future by checking out our free report on Ying Hai Group Holdings' earnings, revenue and cash flow.What Are Revenue Growth Metrics Telling Us About The High P/S?
In order to justify its P/S ratio, Ying Hai Group Holdings would need to produce impressive growth in excess of the industry.
If we review the last year of revenue growth, we see the company's revenues grew exponentially. Spectacularly, three year revenue growth has also set the world alight, thanks to the last 12 months of incredible growth. Accordingly, shareholders would have been over the moon with those medium-term rates of revenue growth.
When compared to the industry's one-year growth forecast of 19%, the most recent medium-term revenue trajectory is noticeably more alluring
In light of this, it's understandable that Ying Hai Group Holdings' P/S sits above the majority of other companies. Presumably shareholders aren't keen to offload something they believe will continue to outmanoeuvre the wider industry.
The Final Word
Ying Hai Group Holdings shares have taken a big step in a northerly direction, but its P/S is elevated as a result. 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.
It's no surprise that Ying Hai Group Holdings can support its high P/S given the strong revenue growth its experienced over the last three-year is superior to the current industry outlook. In the eyes of shareholders, the probability of a continued growth trajectory is great enough to prevent the P/S from pulling back. If recent medium-term revenue trends continue, it's hard to see the share price falling strongly in the near future under these circumstances.
Plus, you should also learn about these 3 warning signs we've spotted with Ying Hai Group Holdings (including 2 which make us uncomfortable).
If you're unsure about the strength of Ying Hai Group Holdings' business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.
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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.
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