Despite an already strong run, Xinyuan Property Management Service (Cayman) Ltd. (HKG:1895) shares have been powering on, with a gain of 36% in the last thirty days. While recent buyers may be laughing, long-term holders might not be as pleased since the recent gain only brings the stock back to where it started a year ago.

Although its price has surged higher, it's still not a stretch to say that Xinyuan Property Management Service (Cayman)'s price-to-sales (or "P/S") ratio of 0.4x right now seems quite "middle-of-the-road" compared to the Real Estate industry in Hong Kong, where the median P/S ratio is around 0.7x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/S.

How Xinyuan Property Management Service (Cayman) Has Been Performing

Revenue has risen firmly for Xinyuan Property Management Service (Cayman) recently, which is pleasing to see. One possibility is that the P/S is moderate because investors think this respectable revenue growth might not be enough to outperform the broader industry in the near future. Those who are bullish on Xinyuan Property Management Service (Cayman) will be hoping that this isn't the case, so that they can pick up the stock at a lower valuation.

What Are Revenue Growth Metrics Telling Us About The P/S?

In order to justify its P/S ratio, Xinyuan Property Management Service (Cayman) would need to produce growth that's similar to the industry.

If we review the last year of revenue growth, the company posted a terrific increase of 23%. As a result, it also grew revenue by 12% in total over the last three years. So we can start by confirming that the company has actually done a good job of growing revenue over that time.

It's interesting to note that the rest of the industry is similarly expected to grow by 5.0% over the next year, which is fairly even with the company's recent medium-term annualised growth rates.

With this in consideration, it's clear to see why Xinyuan Property Management Service (Cayman)'s P/S matches up closely to its industry peers. Apparently shareholders are comfortable to simply hold on assuming the company will continue keeping a low profile.

The Key Takeaway

Xinyuan Property Management Service (Cayman)'s stock has a lot of momentum behind it lately, which has brought its P/S level with the rest of 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.

As we've seen, Xinyuan Property Management Service (Cayman)'s three-year revenue trends seem to be contributing to its P/S, given they look similar to current industry expectations. Right now shareholders are comfortable with the P/S as they are quite confident future revenue won't throw up any surprises. Unless the recent medium-term conditions change, they will continue to support the share price at these levels.

Don't forget that there may be other risks. For instance, we've identified 5 warning signs for Xinyuan Property Management Service (Cayman) (1 shouldn't be ignored) you should be aware of.

If you're unsure about the strength of Xinyuan Property Management Service (Cayman)'s 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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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.