What Shanghai Phoenix Enterprise (Group) Co., Ltd.'s (SHSE:600679) 26% Share Price Gain Is Not Telling You

Despite an already strong run, Shanghai Phoenix Enterprise (Group) Co., Ltd. (SHSE:600679) shares have been powering on, with a gain of 26% in the last thirty days. The last 30 days bring the annual gain to a very sharp 42%.

Even after such a large jump in price, there still wouldn't be many who think Shanghai Phoenix Enterprise (Group)'s price-to-sales (or "P/S") ratio of 3.2x is worth a mention when the median P/S in China's Leisure industry is similar at about 3.7x. 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.

See our latest analysis for Shanghai Phoenix Enterprise (Group)

What Does Shanghai Phoenix Enterprise (Group)'s Recent Performance Look Like?

Shanghai Phoenix Enterprise (Group) has been doing a good job lately as it's been growing revenue at a solid pace. 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. If you like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's not quite in favour.

Although there are no analyst estimates available for Shanghai Phoenix Enterprise (Group), take a look at this free data-rich visualisation to see how the company stacks up on earnings, revenue and cash flow.

Is There Some Revenue Growth Forecasted For Shanghai Phoenix Enterprise (Group)?

In order to justify its P/S ratio, Shanghai Phoenix Enterprise (Group) would need to produce growth that's similar to the industry.

Retrospectively, the last year delivered an exceptional 28% gain to the company's top line. The latest three year period has also seen a 17% overall rise in revenue, aided extensively by its short-term performance. Accordingly, shareholders would have probably been satisfied with the medium-term rates of revenue growth.

Comparing the recent medium-term revenue trends against the industry's one-year growth forecast of 22% shows it's noticeably less attractive.

With this information, we find it interesting that Shanghai Phoenix Enterprise (Group) is trading at a fairly similar P/S compared to the industry. It seems most investors are ignoring the fairly limited recent growth rates and are willing to pay up for exposure to the stock. They may be setting themselves up for future disappointment if the P/S falls to levels more in line with recent growth rates.

What We Can Learn From Shanghai Phoenix Enterprise (Group)'s P/S?

Shanghai Phoenix Enterprise (Group) appears to be back in favour with a solid price jump bringing its P/S back in line with other companies in the industry It's argued the price-to-sales ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

Our examination of Shanghai Phoenix Enterprise (Group) revealed its poor three-year revenue trends aren't resulting in a lower P/S as per our expectations, given they look worse than current industry outlook. Right now we are uncomfortable with the P/S as this revenue performance isn't likely to support a more positive sentiment for long. Unless there is a significant improvement in the company's medium-term performance, it will be difficult to prevent the P/S ratio from declining to a more reasonable level.

And what about other risks? Every company has them, and we've spotted 1 warning sign for Shanghai Phoenix Enterprise (Group) you should know about.

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.