Despite an already strong run, EPI (Holdings) Limited (HKG:689) shares have been powering on, with a gain of 26% in the last thirty days. Unfortunately, the gains of the last month did little to right the losses of the last year with the stock still down 12% over that time.
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 0.7x, you may consider EPI (Holdings) as a stock probably not worth researching with its 1.8x P/S ratio. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's as high as it is.
What Does EPI (Holdings)'s P/S Mean For Shareholders?
EPI (Holdings) certainly has been doing a great job lately as it's been growing its revenue at a really rapid pace. The P/S ratio is probably high because investors think this strong revenue growth will be enough to outperform the broader industry in the near future. If not, then existing shareholders might be a little nervous about the viability of the share price.
Although there are no analyst estimates available for EPI (Holdings), take a look at this free data-rich visualisation to see how the company stacks up on earnings, revenue and cash flow.
How Is EPI (Holdings)'s Revenue Growth Trending?
The only time you'd be truly comfortable seeing a P/S as high as EPI (Holdings)'s is when the company's growth is on track to outshine the industry.
Retrospectively, the last year delivered an exceptional 84% gain to the company's top line. The latest three year period has also seen an excellent 96% overall rise in revenue, aided by its short-term performance. Therefore, it's fair to say the revenue growth recently has been superb for the company.
When compared to the industry's one-year growth forecast of 1.3%, the most recent medium-term revenue trajectory is noticeably more alluring
With this information, we can see why EPI (Holdings) is trading at such a high P/S compared to the industry. Presumably shareholders aren't keen to offload something they believe will continue to outmanoeuvre the wider industry.
The Final Word
EPI (Holdings)'s P/S is on the rise since its shares have risen strongly. It's argued the price-to-sales ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.
It's no surprise that EPI (Holdings) 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. Unless the recent medium-term conditions change, they will continue to provide strong support to the share price.
And what about other risks? Every company has them, and we've spotted 3 warning signs for EPI (Holdings) you should know about.
If strong companies turning a profit tickle your fancy, then you'll want to check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).
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