PC Partner Group Limited (HKG:1263) shares have continued their recent momentum with a 26% gain in the last month alone. The last month tops off a massive increase of 141% in the last year.
Although its price has surged higher, you could still be forgiven for feeling indifferent about PC Partner Group's P/S ratio of 0.3x, since the median price-to-sales (or "P/S") ratio for the Tech industry in Hong Kong is also close to 0.4x. While this might not raise any eyebrows, if the P/S ratio is not justified investors could be missing out on a potential opportunity or ignoring looming disappointment.
See our latest analysis for PC Partner Group
What Does PC Partner Group's Recent Performance Look Like?
PC Partner Group has been doing a good job lately as it's been growing revenue at a solid pace. Perhaps the market is expecting future revenue performance to only keep up with the broader industry, which has keeping the P/S in line with expectations. If that doesn't eventuate, then existing shareholders probably aren't too pessimistic about the future direction 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 PC Partner Group's earnings, revenue and cash flow.Do Revenue Forecasts Match The P/S Ratio?
In order to justify its P/S ratio, PC Partner Group would need to produce growth that's similar to the industry.
If we review the last year of revenue growth, the company posted a terrific increase of 19%. Despite this strong recent growth, it's still struggling to catch up as its three-year revenue frustratingly shrank by 12% overall. So unfortunately, we have to acknowledge that the company has not done a great job of growing revenues over that time.
In contrast to the company, the rest of the industry is expected to grow by 16% over the next year, which really puts the company's recent medium-term revenue decline into perspective.
With this in mind, we find it worrying that PC Partner Group's P/S exceeds that of its industry peers. Apparently many investors in the company are way less bearish than recent times would indicate and aren't willing to let go of their stock right now. There's a good chance existing shareholders are setting themselves up for future disappointment if the P/S falls to levels more in line with the recent negative growth rates.
The Key Takeaway
PC Partner Group appears to be back in favour with a solid price jump bringing its P/S back in line with other companies in the industry While the price-to-sales ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of revenue expectations.
The fact that PC Partner Group currently trades at a P/S on par with the rest of the industry is surprising to us since its recent revenues have been in decline over the medium-term, all while the industry is set to grow. When we see revenue heading backwards in the context of growing industry forecasts, it'd make sense to expect a possible share price decline on the horizon, sending the moderate P/S lower. Unless the the circumstances surrounding the recent medium-term improve, it wouldn't be wrong to expect a a difficult period ahead for the company's shareholders.
We don't want to rain on the parade too much, but we did also find 1 warning sign for PC Partner Group that you need to be mindful of.
If you're unsure about the strength of PC Partner 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.