Optimistic Investors Push Wai Chun Group Holdings Limited (HKG:1013) Shares Up 26% But Growth Is Lacking

Wai Chun Group Holdings Limited (HKG:1013) shareholders have had their patience rewarded with a 26% share price jump in the last month. The last month tops off a massive increase of 158% in the last year.

In spite of the firm bounce in price, there still wouldn't be many who think Wai Chun Group Holdings' price-to-sales (or "P/S") ratio of 0.2x is worth a mention when the median P/S in Hong Kong's Electronic industry is similar at about 0.5x. Although, it's not wise to simply ignore the P/S without explanation as investors may be disregarding a distinct opportunity or a costly mistake.

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Check out our latest analysis for Wai Chun Group Holdings

How Has Wai Chun Group Holdings Performed Recently?

With revenue growth that's exceedingly strong of late, Wai Chun Group Holdings has been doing very well. Perhaps the market is expecting future revenue performance to taper off, which has kept the P/S from rising. Those who are bullish on Wai Chun Group Holdings will be hoping that this isn't the case, so that they can pick up the stock at a lower valuation.

Do Revenue Forecasts Match The P/S Ratio?

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

Taking a look back first, we see that the company grew revenue by an impressive 85% last year. Pleasingly, revenue has also lifted 42% in aggregate from three years ago, thanks to the last 12 months of growth. Accordingly, shareholders would have definitely welcomed those medium-term rates of revenue growth.

Comparing the recent medium-term revenue trends against the industry's one-year growth forecast of 17% shows it's noticeably less attractive.

With this in mind, we find it intriguing that Wai Chun Group Holdings' P/S is comparable to that of its industry peers. It seems most investors are ignoring the fairly limited recent growth rates and are willing to pay up for exposure to the stock. Maintaining these prices will be difficult to achieve as a continuation of recent revenue trends is likely to weigh down the shares eventually.

What We Can Learn From Wai Chun Group Holdings' P/S?

Wai Chun Group Holdings' stock has a lot of momentum behind it lately, which has brought its P/S level with the rest of the industry. 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.

Our examination of Wai Chun Group Holdings 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.

Before you take the next step, you should know about the 2 warning signs for Wai Chun Group Holdings that we have uncovered.

If you're unsure about the strength of Wai Chun Group Holdings' business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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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.