Subdued Growth No Barrier To SPT Energy Group Inc. (HKG:1251) With Shares Advancing 28%

SPT Energy Group Inc. (HKG:1251) shares have had a really impressive month, gaining 28% after a shaky period beforehand. Taking a wider view, although not as strong as the last month, the full year gain of 23% is also fairly reasonable.

Although its price has surged higher, there still wouldn't be many who think SPT Energy Group's price-to-sales (or "P/S") ratio of 0.3x is worth a mention when the median P/S in Hong Kong's Energy Services industry is similar at about 0.5x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/S.

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View our latest analysis for SPT Energy Group

How Has SPT Energy Group Performed Recently?

For instance, SPT Energy Group's receding revenue in recent times would have to be some food for thought. 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 not, then existing shareholders may be a little nervous about the viability of the share price.

Is There Some Revenue Growth Forecasted For SPT Energy Group?

SPT Energy 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.

Retrospectively, the last year delivered a frustrating 13% decrease to the company's top line. This has soured the latest three-year period, which nevertheless managed to deliver a decent 6.7% overall rise in revenue. So we can start by confirming that the company has generally done a good job of growing revenue over that time, even though it had some hiccups along the way.

Comparing that to the industry, which is predicted to deliver 8.6% growth in the next 12 months, the company's momentum is weaker, based on recent medium-term annualised revenue results.

With this in mind, we find it intriguing that SPT Energy Group's P/S is comparable to that of its industry peers. Apparently many investors in the company are less bearish than recent times would indicate and aren't willing to let go of their stock right now. Maintaining these prices will be difficult to achieve as a continuation of recent revenue trends is likely to weigh down the shares eventually.

What Does SPT Energy Group's P/S Mean For Investors?

Its shares have lifted substantially and now SPT Energy Group's P/S is back within range of the industry median. Generally, our preference is to limit the use of the price-to-sales ratio to establishing what the market thinks about the overall health of a company.

Our examination of SPT Energy Group revealed its poor three-year revenue trends aren't resulting in a lower P/S as per our expectations, given they look worse than current industry outlook. When we see weak revenue with slower than industry growth, we suspect the share price is at risk of declining, bringing the P/S back in line with expectations. Unless there is a significant improvement in the company's medium-term performance, it will be difficult to prevent the P/S ratio from declining to a more reasonable level.

You need to take note of risks, for example - SPT Energy Group has 3 warning signs (and 2 which can't be ignored) we think you should know about.

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

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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.