Despite an already strong run, Vitasoy International Holdings Limited (HKG:345) shares have been powering on, with a gain of 26% in the last thirty days. Looking further back, the 16% rise over the last twelve months isn't too bad notwithstanding the strength over the last 30 days.
After such a large jump in price, when almost half of the companies in Hong Kong's Food industry have price-to-sales ratios (or "P/S") below 0.5x, you may consider Vitasoy International Holdings as a stock probably not worth researching with its 1.7x P/S ratio. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's as high as it is.
Check out our latest analysis for Vitasoy International Holdings
How Vitasoy International Holdings Has Been Performing
There hasn't been much to differentiate Vitasoy International Holdings' and the industry's retreating revenue lately. Perhaps the market is expecting the company to reverse its fortunes and beat out a struggling industry in the future, elevating the P/S. If not, then existing shareholders may be a little nervous about the viability of the share price.
Keen to find out how analysts think Vitasoy International Holdings' future stacks up against the industry? In that case, our free report is a great place to start.How Is Vitasoy International Holdings' Revenue Growth Trending?
Vitasoy International Holdings' P/S ratio would be typical for a company that's expected to deliver solid growth, and importantly, perform better than the industry.
Taking a look back first, the company's revenue growth last year wasn't something to get excited about as it posted a disappointing decline of 1.9%. As a result, revenue from three years ago have also fallen 17% overall. So unfortunately, we have to acknowledge that the company has not done a great job of growing revenue over that time.
Shifting to the future, estimates from the four analysts covering the company suggest revenue should grow by 2.6% per annum over the next three years. With the industry predicted to deliver 3.7% growth per year, the company is positioned for a comparable revenue result.
With this information, we find it interesting that Vitasoy International Holdings is trading at a high P/S compared to the industry. It seems most investors are ignoring the fairly average growth expectations and are willing to pay up for exposure to the stock. These shareholders may be setting themselves up for disappointment if the P/S falls to levels more in line with the growth outlook.
What We Can Learn From Vitasoy International Holdings' P/S?
The large bounce in Vitasoy International Holdings' shares has lifted the company's P/S handsomely. Generally, our preference is to limit the use of the price-to-sales ratio to establishing what the market thinks about the overall health of a company.
Given Vitasoy International Holdings' future revenue forecasts are in line with the wider industry, the fact that it trades at an elevated P/S is somewhat surprising. When we see revenue growth that just matches the industry, we don't expect elevates P/S figures to remain inflated for the long-term. A positive change is needed in order to justify the current price-to-sales ratio.
Many other vital risk factors can be found on the company's balance sheet. Take a look at our free balance sheet analysis for Vitasoy International Holdings with six simple checks on some of these key factors.
It's important to make sure you look for a great company, not just the first idea you come across. So if growing profitability aligns with your idea of a great company, take a peek at this free list of interesting companies with strong recent earnings growth (and a low P/E).
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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.