Despite an already strong run, Central China New Life Limited (HKG:9983) shares have been powering on, with a gain of 30% 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 44% over that time.

Even after such a large jump in price, it's still not a stretch to say that Central China New Life's price-to-sales (or "P/S") ratio of 0.6x right now seems quite "middle-of-the-road" compared to the Real Estate industry in Hong Kong, seeing as it matches the P/S ratio of the wider industry. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/S.

What Does Central China New Life's P/S Mean For Shareholders?

While the industry has experienced revenue growth lately, Central China New Life's revenue has gone into reverse gear, which is not great. It might be that many expect the dour revenue performance to strengthen positively, which has kept the P/S from falling. If not, then existing shareholders may be a little nervous about the viability of the share price.

Is There Some Revenue Growth Forecasted For Central China New Life?

The only time you'd be comfortable seeing a P/S like Central China New Life's is when the company's growth is tracking the industry closely.

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 9.6%. That put a dampener on the good run it was having over the longer-term as its three-year revenue growth is still a noteworthy 7.2% in total. So we can start by confirming that the company has generally done a good job of growing revenue over that time, even though it had some hiccups along the way.

Looking ahead now, revenue is anticipated to climb by 5.7% per year during the coming three years according to the four analysts following the company. That's shaping up to be similar to the 5.8% each year growth forecast for the broader industry.

With this information, we can see why Central China New Life is trading at a fairly similar P/S to the industry. It seems most investors are expecting to see average future growth and are only willing to pay a moderate amount for the stock.

The Final Word

Its shares have lifted substantially and now Central China New Life's P/S is back within range of the industry median. Typically, we'd caution against reading too much into price-to-sales ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

Our look at Central China New Life's revenue growth estimates show that its P/S is about what we expect, as both metrics follow closely with the industry averages. At this stage investors feel the potential for an improvement or deterioration in revenue isn't great enough to push P/S in a higher or lower direction. All things considered, if the P/S and revenue estimates contain no major shocks, then it's hard to see the share price moving strongly in either direction in the near future.

Before you settle on your opinion, we've discovered 2 warning signs for Central China New Life that you should be aware of.

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.

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