The Pan Asia Environmental Protection Group Limited (HKG:556) share price has fared very poorly over the last month, falling by a substantial 30%. The good news is that in the last year, the stock has shone bright like a diamond, gaining 137%.
Although its price has dipped substantially, you could still be forgiven for thinking Pan Asia Environmental Protection Group is a stock not worth researching with a price-to-sales ratios (or "P/S") of 2.3x, considering almost half the companies in Hong Kong's Commercial Services industry have P/S ratios below 0.5x. However, the P/S might be high for a reason and it requires further investigation to determine if it's justified.
See our latest analysis for Pan Asia Environmental Protection Group
What Does Pan Asia Environmental Protection Group's P/S Mean For Shareholders?
The revenue growth achieved at Pan Asia Environmental Protection Group over the last year would be more than acceptable for most companies. It might be that many expect the respectable revenue performance to beat most other companies over the coming period, which has increased investors’ willingness to pay up for the stock. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.
Want the full picture on earnings, revenue and cash flow for the company? Then our free report on Pan Asia Environmental Protection Group will help you shine a light on its historical performance.Is There Enough Revenue Growth Forecasted For Pan Asia Environmental Protection Group?
There's an inherent assumption that a company should outperform the industry for P/S ratios like Pan Asia Environmental Protection Group's to be considered reasonable.
Taking a look back first, we see that the company managed to grow revenues by a handy 11% last year. Spectacularly, three year revenue growth has ballooned by several orders of magnitude, even though the last 12 months were fairly tame in comparison. Therefore, it's fair to say the revenue growth recently has been superb for the company.
Comparing that recent medium-term revenue trajectory with the industry's one-year growth forecast of 6.9% shows it's noticeably more attractive.
In light of this, it's understandable that Pan Asia Environmental Protection Group's 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 Bottom Line On Pan Asia Environmental Protection Group's P/S
There's still some elevation in Pan Asia Environmental Protection Group's P/S, even if the same can't be said for its share price recently. It's argued the price-to-sales ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.
We've established that Pan Asia Environmental Protection Group maintains its high P/S on the strength of its recent three-year growth being higher than the wider industry forecast, as expected. At this stage investors feel the potential continued revenue growth in the future is great enough to warrant an inflated P/S. Unless the recent medium-term conditions change, they will continue to provide strong support to the share price.
You should always think about risks. Case in point, we've spotted 3 warning signs for Pan Asia Environmental Protection Group you should be aware of.
If you're unsure about the strength of Pan Asia Environmental Protection 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.