Investors Still Aren't Entirely Convinced By Huili Resources (Group) Limited's (HKG:1303) Revenues Despite 27% Price Jump

The Huili Resources (Group) Limited (HKG:1303) share price has done very well over the last month, posting an excellent gain of 27%. The bad news is that even after the stocks recovery in the last 30 days, shareholders are still underwater by about 5.3% over the last year.

Although its price has surged higher, Huili Resources (Group)'s price-to-sales (or "P/S") ratio of 0.1x might still make it look like a buy right now compared to the Metals and Mining industry in Hong Kong, where around half of the companies have P/S ratios above 1x and even P/S above 3x are quite common. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/S.

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View our latest analysis for Huili Resources (Group)

How Has Huili Resources (Group) Performed Recently?

With revenue growth that's exceedingly strong of late, Huili Resources (Group) has been doing very well. It might be that many expect the strong revenue performance to degrade substantially, which has repressed the P/S ratio. If you like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's out of favour.

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

There's an inherent assumption that a company should underperform the industry for P/S ratios like Huili Resources (Group)'s to be considered reasonable.

If we review the last year of revenue growth, the company posted a terrific increase of 40%. Pleasingly, revenue has also lifted 125% 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 recent medium-term revenue trajectory with the industry's one-year growth forecast of 24% shows it's noticeably more attractive.

In light of this, it's peculiar that Huili Resources (Group)'s P/S sits below the majority of other companies. It looks like most investors are not convinced the company can maintain its recent growth rates.

The Final Word

Despite Huili Resources (Group)'s share price climbing recently, its P/S still lags most other companies. 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 Huili Resources (Group) revealed its three-year revenue trends aren't boosting its P/S anywhere near as much as we would have predicted, given they look better than current industry expectations. Potential investors that are sceptical over continued revenue performance may be preventing the P/S ratio from matching previous strong performance. While recent revenue trends over the past medium-term suggest that the risk of a price decline is low, investors appear to perceive a likelihood of revenue fluctuations in the future.

Having said that, be aware Huili Resources (Group) is showing 3 warning signs in our investment analysis, you should know about.

If these risks are making you reconsider your opinion on Huili Resources (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.