China Partytime Culture Holdings Limited (HKG:1532) shares have had a really impressive month, gaining 30% after a shaky period beforehand. Unfortunately, the gains of the last month did little to right the losses of the last year with the stock still down 15% over that time.

Although its price has surged higher, there still wouldn't be many who think China Partytime Culture Holdings' price-to-sales (or "P/S") ratio of 0.5x is worth a mention when the median P/S in Hong Kong's Luxury industry is similar at about 0.7x. 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 Has China Partytime Culture Holdings Performed Recently?

For example, consider that China Partytime Culture Holdings' financial performance has been pretty ordinary lately as revenue growth is non-existent. It might be that many expect the uninspiring revenue performance to only match most other companies at best over the coming period, which has kept the P/S from rising. Those who are bullish on China Partytime Culture Holdings will be hoping that this isn't the case, so that they can pick up the stock at a lower valuation.

Do Revenue Forecasts Match The P/S Ratio?

In order to justify its P/S ratio, China Partytime Culture Holdings would need to produce growth that's similar to the industry.

Retrospectively, the last year delivered virtually the same number to the company's top line as the year before. However, a few strong years before that means that it was still able to grow revenue by an impressive 37% in total over the last three years. Therefore, it's fair to say the revenue growth recently has been great for the company, but investors will want to ask why it has slowed to such an extent.

Comparing that to the industry, which is predicted to deliver 12% growth in the next 12 months, the company's momentum is pretty similar based on recent medium-term annualised revenue results.

With this in consideration, it's clear to see why China Partytime Culture Holdings' P/S matches up closely to its industry peers. It seems most investors are expecting to see average growth rates continue into the future and are only willing to pay a moderate amount for the stock.

What We Can Learn From China Partytime Culture Holdings' P/S?

China Partytime Culture Holdings appears to be back in favour with a solid price jump bringing its P/S back in line with other companies in the industry 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.

It appears to us that China Partytime Culture Holdings maintains its moderate P/S off the back of its recent three-year growth being in line with the wider industry forecast. Right now shareholders are comfortable with the P/S as they are quite confident future revenue won't throw up any surprises. If recent medium-term revenue trends continue, it's hard to see the share price moving strongly in either direction in the near future under these circumstances.

Before you take the next step, you should know about the 4 warning signs for China Partytime Culture Holdings (2 are concerning!) that we have uncovered.

If you're unsure about the strength of China Partytime Culture Holdings' business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
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.