Despite an already strong run, Overseas Chinese Town (Asia) Holdings Limited (HKG:3366) shares have been powering on, with a gain of 35% 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 23% over that time.

In spite of the firm bounce in price, Overseas Chinese Town (Asia) Holdings' price-to-sales (or "P/S") ratio of 0.1x might still make it look like a buy right now compared to the Real Estate industry in Hong Kong, where around half of the companies have P/S ratios above 0.7x and even P/S above 3x are quite common. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's limited.

How Has Overseas Chinese Town (Asia) Holdings Performed Recently?

For example, consider that Overseas Chinese Town (Asia) Holdings' financial performance has been poor lately as its revenue has been in decline. Perhaps the market believes the recent revenue performance isn't good enough to keep up the industry, causing the P/S ratio to suffer. 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.

Is There Any Revenue Growth Forecasted For Overseas Chinese Town (Asia) Holdings?

In order to justify its P/S ratio, Overseas Chinese Town (Asia) Holdings would need to produce sluggish growth that's trailing the industry.

Taking a look back first, the company's revenue growth last year wasn't something to get excited about as it posted a disappointing decline of 30%. However, a few very strong years before that means that it was still able to grow revenue by an impressive 43% in total over the last three years. So we can start by confirming that the company has generally done a very good job of growing revenue over that time, even though it had some hiccups along the way.

Comparing that recent medium-term revenue trajectory with the industry's one-year growth forecast of 5.3% shows it's noticeably more attractive.

With this in mind, we find it intriguing that Overseas Chinese Town (Asia) Holdings' P/S isn't as high compared to that of its industry peers. It looks like most investors are not convinced the company can maintain its recent growth rates.

The Final Word

Overseas Chinese Town (Asia) Holdings' stock price has surged recently, but its but its P/S still remains modest. Generally, our preference is to limit the use of the price-to-sales ratio to establishing what the market thinks about the overall health of a company.

We're very surprised to see Overseas Chinese Town (Asia) Holdings currently trading on a much lower than expected P/S since its recent three-year growth is higher than the wider industry forecast. 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. It appears many are indeed anticipating revenue instability, because the persistence of these recent medium-term conditions would normally provide a boost to the share price.

Having said that, be aware Overseas Chinese Town (Asia) Holdings is showing 3 warning signs in our investment analysis, and 2 of those make us uncomfortable.

If companies with solid past earnings growth is up your alley, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

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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.