China Uptown Group Company Limited (HKG:2330) Stock Rockets 42% As Investors Are Less Pessimistic Than Expected
China Uptown Group Company Limited (HKG:2330) shares have continued their recent momentum with a 42% gain in the last month alone. The last month tops off a massive increase of 190% in the last year.
Following the firm bounce in price, given close to half the companies operating in Hong Kong's Real Estate industry have price-to-sales ratios (or "P/S") below 0.7x, you may consider China Uptown Group as a stock to potentially avoid with its 1.2x P/S ratio. However, the P/S might be high for a reason and it requires further investigation to determine if it's justified.
View our latest analysis for China Uptown Group
What Does China Uptown Group's Recent Performance Look Like?
With revenue growth that's exceedingly strong of late, China Uptown Group has been doing very well. It seems that many are expecting the strong revenue performance to beat most other companies over the coming period, which has increased investors’ willingness to pay up for the stock. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.
We don't have analyst forecasts, but you can see how recent trends are setting up the company for the future by checking out our free report on China Uptown Group's earnings, revenue and cash flow.Is There Enough Revenue Growth Forecasted For China Uptown Group?
There's an inherent assumption that a company should outperform the industry for P/S ratios like China Uptown Group's to be considered reasonable.
Retrospectively, the last year delivered an exceptional 235% gain to the company's top line. Despite this strong recent growth, it's still struggling to catch up as its three-year revenue frustratingly shrank by 54% overall. Accordingly, shareholders would have felt downbeat about the medium-term rates of revenue growth.
Comparing that to the industry, which is predicted to deliver 5.4% growth in the next 12 months, the company's downward momentum based on recent medium-term revenue results is a sobering picture.
In light of this, it's alarming that China Uptown Group's P/S sits above the majority of other companies. It seems most investors are ignoring the recent poor growth rate and are hoping for a turnaround in the company's business prospects. There's a very good chance existing shareholders are setting themselves up for future disappointment if the P/S falls to levels more in line with the recent negative growth rates.
What We Can Learn From China Uptown Group's P/S?
China Uptown Group's P/S is on the rise since its shares have risen strongly. Using the price-to-sales ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.
We've established that China Uptown Group currently trades on a much higher than expected P/S since its recent revenues have been in decline over the medium-term. With a revenue decline on investors' minds, the likelihood of a souring sentiment is quite high which could send the P/S back in line with what we'd expect. Unless the the circumstances surrounding the recent medium-term improve, it wouldn't be wrong to expect a a difficult period ahead for the company's shareholders.
Plus, you should also learn about these 3 warning signs we've spotted with China Uptown Group (including 2 which make us uncomfortable).
Of course, profitable companies with a history of great earnings growth are generally safer bets. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.
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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.