Sheen Tai Holdings Group Company Limited (HKG:1335) shares have continued their recent momentum with a 72% gain in the last month alone. Taking a wider view, although not as strong as the last month, the full year gain of 19% is also fairly reasonable.

Although its price has surged higher, there still wouldn't be many who think Sheen Tai Holdings Group's price-to-sales (or "P/S") ratio of 0.8x is worth a mention when the median P/S in Hong Kong's Packaging industry is similar at about 0.9x. 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.

How Sheen Tai Holdings Group Has Been Performing

Sheen Tai Holdings Group certainly has been doing a great job lately as it's been growing its revenue at a really rapid pace. The P/S is probably moderate because investors think this strong revenue growth might not be enough to outperform the broader industry in the near future. 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 not quite in favour.

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

In order to justify its P/S ratio, Sheen Tai Holdings Group would need to produce growth that's similar to the industry.

If we review the last year of revenue growth, the company posted a terrific increase of 34%. The latest three year period has also seen an incredible overall rise in revenue, aided by its incredible short-term performance. So we can start by confirming that the company has done a tremendous job of growing revenue over that time.

When compared to the industry's one-year growth forecast of 22%, the most recent medium-term revenue trajectory is noticeably more alluring

With this information, we find it interesting that Sheen Tai Holdings Group is trading at a fairly similar P/S compared to the industry. Apparently some shareholders believe the recent performance is at its limits and have been accepting lower selling prices.

The Final Word

Its shares have lifted substantially and now Sheen Tai Holdings Group's P/S is back within range of the industry median. 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.

We didn't quite envision Sheen Tai Holdings Group's P/S sitting in line with the wider industry, considering the revenue growth over the last three-year is higher than the current industry outlook. It'd be fair to assume that potential risks the company faces could be the contributing factor to the lower than expected P/S. It appears some are indeed anticipating revenue instability, because the persistence of these recent medium-term conditions would normally provide a boost to the share price.

There are also other vital risk factors to consider and we've discovered 2 warning signs for Sheen Tai Holdings Group (1 doesn't sit too well with us!) that you should be aware of before investing here.

If these risks are making you reconsider your opinion on Sheen Tai Holdings 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.