Value Partners Group Limited's (HKG:806) price-to-sales (or "P/S") ratio of 7.8x may look like a poor investment opportunity when you consider close to half the companies in the Capital Markets industry in Hong Kong have P/S ratios below 2.5x. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly elevated P/S.

View our latest analysis for Value Partners Group

What Does Value Partners Group's P/S Mean For Shareholders?

Recent times haven't been great for Value Partners Group as its revenue has been falling quicker than most other companies. It might be that many expect the dismal revenue performance to recover substantially, which has kept the P/S from collapsing. If not, then existing shareholders may be very nervous about the viability of the share price.

How Is Value Partners Group's Revenue Growth Trending?

There's an inherent assumption that a company should far outperform the industry for P/S ratios like Value Partners Group's to be considered reasonable.

In reviewing the last year of financials, we were disheartened to see the company's revenues fell to the tune of 41%. As a result, revenue from three years ago have also fallen 59% overall. Accordingly, shareholders would have felt downbeat about the medium-term rates of revenue growth.

Turning to the outlook, the next year should generate growth of 62% as estimated by the two analysts watching the company. That's shaping up to be materially higher than the 40% growth forecast for the broader industry.

With this in mind, it's not hard to understand why Value Partners Group's P/S is high relative to its industry peers. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.

The Key Takeaway

While the price-to-sales ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of revenue expectations.

Our look into Value Partners Group shows that its P/S ratio remains high on the merit of its strong future revenues. It appears that shareholders are confident in the company's future revenues, which is propping up the P/S. It's hard to see the share price falling strongly in the near future under these circumstances.

A lot of potential risks can sit within a company's balance sheet. Our free balance sheet analysis for Value Partners Group with six simple checks will allow you to discover any risks that could be an issue.

It's important to make sure you look for a great company, not just the first idea you come across. So if growing profitability aligns with your idea of a great company, take a peek at this free list of interesting companies with strong recent earnings growth (and a low P/E).

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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.