Sang Hing Holdings (International) Limited's (HKG:1472) Share Price Not Quite Adding Up

There wouldn't be many who think Sang Hing Holdings (International) Limited's (HKG:1472) price-to-sales (or "P/S") ratio of 0.3x is worth a mention when the median P/S for the Construction industry in Hong Kong is similar at about 0.4x. 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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Check out our latest analysis for Sang Hing Holdings (International)

How Has Sang Hing Holdings (International) Performed Recently?

With revenue growth that's exceedingly strong of late, Sang Hing Holdings (International) has been doing very well. Perhaps the market is expecting future revenue performance to taper off, which has kept the P/S from rising. If that doesn't eventuate, then existing shareholders have reason to be feeling optimistic about the future direction of the share price.

What Are Revenue Growth Metrics Telling Us About The P/S?

Sang Hing Holdings (International)'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 an exceptional 71% gain to the company's top line. Despite this strong recent growth, it's still struggling to catch up as its three-year revenue frustratingly shrank by 42% overall. So unfortunately, we have to acknowledge that the company has not done a great job of growing revenues over that time.

Weighing that medium-term revenue trajectory against the broader industry's one-year forecast for expansion of 9.5% shows it's an unpleasant look.

With this in mind, we find it worrying that Sang Hing Holdings (International)'s P/S exceeds that of its industry peers. Apparently many investors in the company are way less bearish than recent times would indicate and aren't willing to let go of their stock right now. Only the boldest would assume these prices are sustainable as a continuation of recent revenue trends is likely to weigh on the share price eventually.

The Bottom Line On Sang Hing Holdings (International)'s P/S

Using the price-to-sales ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

Our look at Sang Hing Holdings (International) revealed its shrinking revenues over the medium-term haven't impacted the P/S as much as we anticipated, given the industry is set to grow. Even though it matches the industry, we're uncomfortable with the current P/S ratio, as this dismal revenue performance is unlikely to support a more positive sentiment for long. Unless the the circumstances surrounding the recent medium-term improve, it wouldn't be wrong to expect a a difficult period ahead for the company's shareholders.

We don't want to rain on the parade too much, but we did also find 2 warning signs for Sang Hing Holdings (International) 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.