China HK Power Smart Energy Group Limited's (HKG:931) P/S Is Still On The Mark Following 62% Share Price Bounce

Despite an already strong run, China HK Power Smart Energy Group Limited (HKG:931) shares have been powering on, with a gain of 62% in the last thirty days. Looking back a bit further, it's encouraging to see the stock is up 73% in the last year.

After such a large jump in price, when almost half of the companies in Hong Kong's Oil and Gas industry have price-to-sales ratios (or "P/S") below 0.8x, you may consider China HK Power Smart Energy Group as a stock not worth researching with its 7.2x P/S ratio. However, the P/S might be quite high for a reason and it requires further investigation to determine if it's justified.

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Check out our latest analysis for China HK Power Smart Energy Group

What Does China HK Power Smart Energy Group's Recent Performance Look Like?

Recent times have been quite advantageous for China HK Power Smart Energy Group as its revenue has been rising very briskly. Perhaps the market is expecting future revenue performance to outperform the wider market, which has seemingly got people interested in the stock. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

Do Revenue Forecasts Match The High P/S Ratio?

The only time you'd be truly comfortable seeing a P/S as steep as China HK Power Smart Energy Group's is when the company's growth is on track to outshine the industry decidedly.

If we review the last year of revenue growth, the company posted a terrific increase of 57%. Pleasingly, revenue has also lifted 65% in aggregate from three years ago, thanks to the last 12 months of growth. Therefore, it's fair to say the revenue growth recently has been superb for the company.

Comparing that to the industry, which is only predicted to deliver 1.2% growth in the next 12 months, the company's momentum is stronger based on recent medium-term annualised revenue results.

With this information, we can see why China HK Power Smart Energy Group is trading at such a high P/S compared to the industry. It seems most investors are expecting this strong growth to continue and are willing to pay more for the stock.

The Final Word

Shares in China HK Power Smart Energy Group have seen a strong upwards swing lately, which has really helped boost its P/S figure. 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.

It's no surprise that China HK Power Smart Energy 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. Right now shareholders are comfortable with the P/S as they are quite confident revenue aren't under threat. Barring any significant changes to the company's ability to make money, the share price should continue to be propped up.

We don't want to rain on the parade too much, but we did also find 1 warning sign for China HK Power Smart Energy Group that you need to be mindful of.

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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.