CHTC Fong's International Company Limited (HKG:641) shares have continued their recent momentum with a 28% gain in the last month alone. Taking a wider view, although not as strong as the last month, the full year gain of 17% is also fairly reasonable.
Although its price has surged higher, you could still be forgiven for feeling indifferent about CHTC Fong's International's P/S ratio of 0.2x, since the median price-to-sales (or "P/S") ratio for the Machinery industry in Hong Kong is also close to 0.6x. 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.
SEHK:641 Price to Sales Ratio vs Industry May 21st 2024
What Does CHTC Fong's International's Recent Performance Look Like?
For example, consider that CHTC Fong's International's financial performance has been poor lately as its revenue has been in decline. It might be that many expect the company to put the disappointing revenue performance behind them over the coming period, which has kept the P/S from falling. If you like the company, you'd at least be hoping this is the case so that you could potentially pick up some stock while it's not quite in favour.
We don't have analyst forecasts, but you can see how recent trends are setting up the company for the future by checking out our free report on CHTC Fong's International's earnings, revenue and cash flow.
How Is CHTC Fong's International's Revenue Growth Trending?
There's an inherent assumption that a company should be matching the industry for P/S ratios like CHTC Fong's International's to be considered reasonable.
Retrospectively, the last year delivered a frustrating 30% decrease to the company's top line. The last three years don't look nice either as the company has shrunk revenue by 24% in aggregate. So unfortunately, we have to acknowledge that the company has not done a great job of growing revenue over that time.
Weighing that medium-term revenue trajectory against the broader industry's one-year forecast for expansion of 13% shows it's an unpleasant look.
With this information, we find it concerning that CHTC Fong's International is trading at a fairly similar P/S compared to the industry. 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.
What We Can Learn From CHTC Fong's International's P/S?
Its shares have lifted substantially and now CHTC Fong's International's P/S is back within range of the industry median. Typically, we'd caution against reading too much into price-to-sales ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.
Our look at CHTC Fong's 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.
Don't forget that there may be other risks. For instance, we've identified 4 warning signs for CHTC Fong's International (2 make us uncomfortable) you should be aware of.
It's important to make sure you look for a great company, not just the first idea you come across. So if growing profitability aligns with your idea of a great company, take a peek at this free list of interesting companies with strong recent earnings growth (and a low P/E).
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CHTC Fong's International Company Company Limited(HKG: 641)的股价延续了近期的势头,仅上个月就上涨了28%。从更广泛的角度来看,尽管没有上个月那么强劲,但全年17%的涨幅也相当合理。