Further Upside For ISP Global Limited (HKG:8487) Shares Could Introduce Price Risks After 30% Bounce

ISP Global Limited (HKG:8487) shareholders have had their patience rewarded with a 30% share price jump in the last month. Taking a wider view, although not as strong as the last month, the full year gain of 16% is also fairly reasonable.

Even after such a large jump in price, there still wouldn't be many who think ISP Global's price-to-sales (or "P/S") ratio of 0.5x is worth a mention when the median P/S in Hong Kong's Communications industry is similar at about 0.7x. 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.

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See our latest analysis for ISP Global

How ISP Global Has Been Performing

Revenue has risen at a steady rate over the last year for ISP Global, which is generally not a bad outcome. One possibility is that the P/S is moderate because investors think this good revenue growth might only be parallel to the broader industry in the near future. Those who are bullish on ISP Global will be hoping that this isn't the case, so that they can pick up the stock at a lower valuation.

Is There Some Revenue Growth Forecasted For ISP Global?

There's an inherent assumption that a company should be matching the industry for P/S ratios like ISP Global's to be considered reasonable.

Taking a look back first, we see that the company managed to grow revenues by a handy 7.3% last year. This was backed up an excellent period prior to see revenue up by 197% in total over the last three years. So we can start by confirming that the company has done a great job of growing revenues over that time.

Comparing that recent medium-term revenue trajectory with the industry's one-year growth forecast of 39% shows it's noticeably more attractive.

In light of this, it's curious that ISP Global's 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 Key Takeaway

Its shares have lifted substantially and now ISP Global'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've established that ISP Global currently trades on a lower than expected P/S since its recent three-year growth is higher than the wider industry forecast. When we see strong revenue with faster-than-industry growth, we can only assume potential risks are what might be placing pressure on the P/S ratio. 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.

Having said that, be aware ISP Global is showing 2 warning signs in our investment analysis, and 1 of those can't be ignored.

Of course, profitable companies with a history of great earnings growth are generally safer bets. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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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.