United Energy Group Limited (HKG:467) shareholders are no doubt pleased to see that the share price has bounced 27% in the last month, although it is still struggling to make up recently lost ground. Still, the 30-day jump doesn't change the fact that longer term shareholders have seen their stock decimated by the 58% share price drop in the last twelve months.
In spite of the firm bounce in price, it's still not a stretch to say that United Energy Group's price-to-sales (or "P/S") ratio of 0.8x right now seems quite "middle-of-the-road" compared to the Oil and Gas industry in Hong Kong, where the median P/S ratio is around 0.7x. 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 United Energy Group
What Does United Energy Group's P/S Mean For Shareholders?
Recent times have been pleasing for United Energy Group as its revenue has risen in spite of the industry's average revenue going into reverse. Perhaps the market is expecting its current strong performance to taper off in accordance to the rest of the industry, which has kept the P/S contained. Those who are bullish on United Energy Group will be hoping that this isn't the case, so that they can pick up the stock at a slightly lower valuation.
Keen to find out how analysts think United Energy Group's future stacks up against the industry? In that case, our free report is a great place to start.Is There Some Revenue Growth Forecasted For United Energy Group?
United Energy Group's P/S ratio would be typical for a company that's only expected to deliver moderate growth, and importantly, perform in line with the industry.
Retrospectively, the last year delivered an exceptional 26% gain to the company's top line. The strong recent performance means it was also able to grow revenue by 119% in total over the last three years. Therefore, it's fair to say the revenue growth recently has been superb for the company.
Shifting to the future, estimates from the two analysts covering the company suggest revenue should grow by 10% per annum over the next three years. With the industry only predicted to deliver 0.5% per year, the company is positioned for a stronger revenue result.
With this in consideration, we find it intriguing that United Energy Group's P/S is closely matching its industry peers. It may be that most investors aren't convinced the company can achieve future growth expectations.
The Bottom Line On United Energy Group's P/S
United Energy Group appears to be back in favour with a solid price jump bringing its P/S back in line with other companies in the industry 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.
We've established that United Energy Group currently trades on a lower than expected P/S since its forecasted revenue growth is higher than the wider industry. When we see a strong revenue outlook, with growth outpacing the industry, we can only assume potential uncertainty around these figures are what might be placing slight pressure on the P/S ratio. It appears some are indeed anticipating revenue instability, because these conditions should normally provide a boost to the share price.
Before you take the next step, you should know about the 3 warning signs for United Energy Group (1 is potentially serious!) that we have uncovered.
If you're unsure about the strength of United Energy Group's 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.