Those holding Pan Asia Environmental Protection Group Limited (HKG:556) shares would be relieved that the share price has rebounded 31% in the last thirty days, but it needs to keep going to repair the recent damage it has caused to investor portfolios. The last month tops off a massive increase of 163% in the last year.
After such a large jump in price, given around half the companies in Hong Kong's Commercial Services industry have price-to-sales ratios (or "P/S") below 0.5x, you may consider Pan Asia Environmental Protection Group as a stock to avoid entirely with its 2.9x 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 so lofty.
View our latest analysis for Pan Asia Environmental Protection Group
How Pan Asia Environmental Protection Group Has Been Performing
Revenue has risen firmly for Pan Asia Environmental Protection Group recently, which is pleasing to see. 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. If not, then existing shareholders may 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 Pan Asia Environmental Protection Group's earnings, revenue and cash flow.How Is Pan Asia Environmental Protection Group's Revenue Growth Trending?
There's an inherent assumption that a company should far outperform the industry for P/S ratios like Pan Asia Environmental Protection Group's to be considered reasonable.
Retrospectively, the last year delivered a decent 11% gain to the company's revenues. 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 5.4% shows it's noticeably more attractive.
With this in consideration, it's not hard to understand why Pan Asia Environmental Protection Group's P/S is high relative to its industry peers. It seems most investors are expecting this strong growth to continue and are willing to pay more for the stock.
What We Can Learn From Pan Asia Environmental Protection Group's P/S?
Shares in Pan Asia Environmental Protection Group have seen a strong upwards swing lately, which has really helped boost its P/S figure. 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 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. Barring any significant changes to the company's ability to make money, the share price should continue to be propped up.
Plus, you should also learn about these 2 warning signs we've spotted with Pan Asia Environmental Protection Group.
If these risks are making you reconsider your opinion on Pan Asia Environmental Protection Group, explore our interactive list of high quality stocks to get an idea of what else is out there.
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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.