There wouldn't be many who think China Glass Holdings Limited's (HKG:3300) price-to-sales (or "P/S") ratio of 0.1x is worth a mention when the median P/S for the Building industry in Hong Kong is similar at about 0.5x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/S.
Check out our latest analysis for China Glass Holdings
How China Glass Holdings Has Been Performing
Recent times have been quite advantageous for China Glass Holdings as its revenue has been rising very briskly. It might be that many expect the strong revenue performance to wane, which has kept the share price, and thus the P/S ratio, from rising. If that doesn't eventuate, then existing shareholders have reason to be feeling optimistic about the future direction 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 China Glass Holdings' earnings, revenue and cash flow.Do Revenue Forecasts Match The P/S Ratio?
There's an inherent assumption that a company should be matching the industry for P/S ratios like China Glass Holdings' to be considered reasonable.
If we review the last year of revenue growth, the company posted a terrific increase of 35%. The latest three year period has also seen an excellent 47% 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 9.5% shows it's noticeably more attractive.
In light of this, it's curious that China Glass Holdings' 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 We Can Learn From China Glass Holdings' P/S?
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 didn't quite envision China Glass Holdings' 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. There could be some unobserved threats to revenue preventing the P/S ratio from matching this positive performance. While recent revenue trends over the past medium-term suggest that the risk of a price decline is low, investors appear to see the likelihood of revenue fluctuations in the future.
Before you take the next step, you should know about the 2 warning signs for China Glass Holdings that we have uncovered.
If you're unsure about the strength of China Glass 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.