Ying Hai Group Holdings Company Limited's (HKG:8668) price-to-sales (or "P/S") ratio of 1.2x may not look like an appealing investment opportunity when you consider close to half the companies in the Hospitality industry in Hong Kong have P/S ratios below 0.7x. However, the P/S might be high for a reason and it requires further investigation to determine if it's justified.
View our latest analysis for Ying Hai Group Holdings
How Has Ying Hai Group Holdings Performed Recently?
With revenue growth that's exceedingly strong of late, Ying Hai Group Holdings has been doing very well. Perhaps the market is expecting future revenue performance to outperform the wider market, which has seemingly got people interested in the stock. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.
Although there are no analyst estimates available for Ying Hai Group Holdings, take a look at this free data-rich visualisation to see how the company stacks up on earnings, revenue and cash flow.Is There Enough Revenue Growth Forecasted For Ying Hai Group Holdings?
There's an inherent assumption that a company should outperform the industry for P/S ratios like Ying Hai Group Holdings' to be considered reasonable.
If we review the last year of revenue growth, the company posted a terrific increase of 172%. The latest three year period has also seen an incredible overall rise in revenue, aided by its incredible short-term performance. Accordingly, shareholders would have been over the moon with those medium-term rates of revenue growth.
This is in contrast to the rest of the industry, which is expected to grow by 15% over the next year, materially lower than the company's recent medium-term annualised growth rates.
With this information, we can see why Ying Hai Group Holdings is trading at such a high P/S compared to the industry. Presumably shareholders aren't keen to offload something they believe will continue to outmanoeuvre the wider industry.
The Bottom Line On Ying Hai Group 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.
It's no surprise that Ying Hai Group Holdings can support its high P/S given the strong revenue growth its experienced over the last three-year is superior to the current industry outlook. Right now shareholders are comfortable with the P/S as they are quite confident revenue aren't under threat. If recent medium-term revenue trends continue, it's hard to see the share price falling strongly in the near future under these circumstances.
And what about other risks? Every company has them, and we've spotted 2 warning signs for Ying Hai Group Holdings (of which 1 doesn't sit too well with us!) you should know about.
Of course, profitable companies with a history of great earnings growth are generally safer bets. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.
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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.