With a median price-to-sales (or "P/S") ratio of close to 0.6x in the Oil and Gas industry in Hong Kong, you could be forgiven for feeling indifferent about Sino Oil and Gas Holdings Limited's (HKG:702) P/S ratio of 0.3x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/S.
View our latest analysis for Sino Oil and Gas Holdings
What Does Sino Oil and Gas Holdings' Recent Performance Look Like?
As an illustration, revenue has deteriorated at Sino Oil and Gas Holdings over the last year, which is not ideal at all. Perhaps investors believe the recent revenue performance is enough to keep in line with the industry, which is keeping the P/S from dropping off. If you like the company, you'd at least be hoping this is the case so that you could potentially pick up some stock while it's not quite in favour.
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 Sino Oil and Gas Holdings' earnings, revenue and cash flow.How Is Sino Oil and Gas Holdings' Revenue Growth Trending?
The only time you'd be comfortable seeing a P/S like Sino Oil and Gas Holdings' is when the company's growth is tracking the industry closely.
In reviewing the last year of financials, we were disheartened to see the company's revenues fell to the tune of 6.6%. Regardless, revenue has managed to lift by a handy 24% in aggregate from three years ago, thanks to the earlier period of growth. Accordingly, while they would have preferred to keep the run going, shareholders would be roughly satisfied with the medium-term rates of revenue growth.
When compared to the industry's one-year growth forecast of 1.4%, the most recent medium-term revenue trajectory is noticeably more alluring
In light of this, it's curious that Sino Oil and Gas 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.
The Bottom Line On Sino Oil and Gas Holdings' P/S
Using the price-to-sales ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.
We've established that Sino Oil and Gas Holdings currently trades on a lower than expected P/S since its recent three-year growth is higher than the wider industry forecast. It'd be fair to assume that potential risks the company faces could be the contributing factor to the lower than expected P/S. At least the risk of a price drop looks to be subdued if recent medium-term revenue trends continue, but investors seem to think future revenue could see some volatility.
It is also worth noting that we have found 3 warning signs for Sino Oil and Gas Holdings (2 make us uncomfortable!) that you need to take into consideration.
If companies with solid past earnings growth is up your alley, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.
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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.