Chuanglian Holdings Limited (HKG:2371) shares have had a really impressive month, gaining 38% after a shaky period beforehand. Not all shareholders will be feeling jubilant, since the share price is still down a very disappointing 19% in the last twelve months.

Although its price has surged higher, given about half the companies operating in Hong Kong's Consumer Services industry have price-to-sales ratios (or "P/S") above 1x, you may still consider Chuanglian Holdings as an attractive investment with its 0.3x 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 limited.

What Does Chuanglian Holdings' P/S Mean For Shareholders?

Chuanglian Holdings certainly has been doing a great job lately as it's been growing its revenue at a really rapid pace. It might be that many expect the strong revenue performance to degrade substantially, which has repressed the P/S ratio. Those who are bullish on Chuanglian Holdings will be hoping that this isn't the case, so that they can pick up the stock at a lower valuation.

How Is Chuanglian Holdings' Revenue Growth Trending?

In order to justify its P/S ratio, Chuanglian Holdings would need to produce sluggish growth that's trailing the industry.

Retrospectively, the last year delivered an exceptional 57% gain to the company's top line. The latest three year period has also seen an excellent 179% overall rise in revenue, aided by its short-term performance. So we can start by confirming that the company has done a great job of growing revenue over that time.

Comparing that recent medium-term revenue trajectory with the industry's one-year growth forecast of 19% shows it's noticeably more attractive.

With this in mind, we find it intriguing that Chuanglian Holdings' P/S isn't as high compared to that of its industry peers. Apparently some shareholders believe the recent performance has exceeded its limits and have been accepting significantly lower selling prices.

The Key Takeaway

Despite Chuanglian Holdings' 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 Chuanglian Holdings 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. When we see robust revenue growth that outpaces the industry, we presume that there are notable underlying risks to the company's future performance, which is exerting downward pressure on the P/S ratio. At least price risks look to be very low if recent medium-term revenue trends continue, but investors seem to think future revenue could see a lot of volatility.

Plus, you should also learn about these 2 warning signs we've spotted with Chuanglian Holdings (including 1 which is potentially serious).

If you're unsure about the strength of Chuanglian 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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