The Price Is Right For Central New Energy Holding Group Limited (HKG:1735)

When you see that almost half of the companies in the Construction industry in Hong Kong have price-to-sales ratios (or "P/S") below 0.3x, Central New Energy Holding Group Limited (HKG:1735) looks to be giving off strong sell signals with its 7.8x 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.

We've found 21 US stocks that are forecast to pay a dividend yield of over 6% next year. See the full list for free.

See our latest analysis for Central New Energy Holding Group

How Has Central New Energy Holding Group Performed Recently?

Recent times have been quite advantageous for Central New Energy Holding Group as its revenue has been rising very briskly. It seems that many are expecting the strong 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 might be a little nervous about the viability of the share price.

How Is Central New Energy Holding Group's Revenue Growth Trending?

There's an inherent assumption that a company should far outperform the industry for P/S ratios like Central New Energy Holding Group's to be considered reasonable.

Taking a look back first, we see that the company grew revenue by an impressive 81% last year. This great performance means it was also able to deliver immense revenue growth over the last three years. So we can start by confirming that the company has done a tremendous job of growing revenue over that time.

When compared to the industry's one-year growth forecast of 8.4%, the most recent medium-term revenue trajectory is noticeably more alluring

In light of this, it's understandable that Central New Energy Holding Group's P/S sits above the majority of other companies. Presumably shareholders aren't keen to offload something they believe will continue to outmanoeuvre the wider industry.

The Key Takeaway

Typically, we'd caution against reading too much into price-to-sales ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

It's no surprise that Central New Energy Holding Group 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. At this stage investors feel the potential continued revenue growth in the future is great enough to warrant an inflated P/S. If recent medium-term revenue trends continue, it's hard to see the share price falling strongly in the near future under these circumstances.

Before you take the next step, you should know about the 2 warning signs for Central New Energy Holding Group that we have uncovered.

If these risks are making you reconsider your opinion on Central New Energy Holding Group, explore our interactive list of high quality stocks to get an idea of what else is out there.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.