China Carbon Neutral Development Group Limited (HKG:1372) shareholders have had their patience rewarded with a 37% share price jump in the last month. The bad news is that even after the stocks recovery in the last 30 days, shareholders are still underwater by about 9.3% over the last year.
Although its price has surged higher, you could still be forgiven for feeling indifferent about China Carbon Neutral Development Group's P/S ratio of 0.3x, since the median price-to-sales (or "P/S") ratio for the Construction industry in Hong Kong is about the same. 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.
Our free stock report includes 3 warning signs investors should be aware of before investing in China Carbon Neutral Development Group. Read for free now.View our latest analysis for China Carbon Neutral Development Group
How Has China Carbon Neutral Development Group Performed Recently?
The revenue growth achieved at China Carbon Neutral Development Group over the last year would be more than acceptable for most companies. One possibility is that the P/S is moderate because investors think this respectable revenue growth might not be enough to outperform the broader industry in the near future. Those who are bullish on China Carbon Neutral Development Group will be hoping that this isn't the case, so that they can pick up the stock at a lower valuation.
Want the full picture on earnings, revenue and cash flow for the company? Then our free report on China Carbon Neutral Development Group will help you shine a light on its historical performance.How Is China Carbon Neutral Development Group's Revenue Growth Trending?
China Carbon Neutral Development Group's P/S ratio would be typical for a company that's only expected to deliver moderate growth, and importantly, perform in line with the industry.
If we review the last year of revenue growth, the company posted a terrific increase of 18%. The strong recent performance means it was also able to grow revenue by 60% in total over the last three years. Therefore, it's fair to say the revenue growth recently has been superb for the company.
When compared to the industry's one-year growth forecast of 9.3%, the most recent medium-term revenue trajectory is noticeably more alluring
With this information, we find it interesting that China Carbon Neutral Development Group is trading at a fairly similar P/S compared to the industry. Apparently some shareholders believe the recent performance is at its limits and have been accepting lower selling prices.
The Final Word
Its shares have lifted substantially and now China Carbon Neutral Development Group's P/S is back within range of the industry median. 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 didn't quite envision China Carbon Neutral Development Group's P/S sitting in line with the wider industry, considering the revenue growth over the last three-year is higher than the current industry outlook. There could be some unobserved threats to revenue preventing the P/S ratio from matching this positive performance. While recent revenue trends over the past medium-term suggest that the risk of a price decline is low, investors appear to see the likelihood of revenue fluctuations in the future.
You need to take note of risks, for example - China Carbon Neutral Development Group has 3 warning signs (and 1 which is a bit unpleasant) we think you should know about.
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.