Alpha Group's (SZSE:002292) 29% Jump Shows Its Popularity With Investors

Alpha Group (SZSE:002292) shareholders are no doubt pleased to see that the share price has bounced 29% in the last month, although it is still struggling to make up recently lost ground. The last 30 days bring the annual gain to a very sharp 36%.

Following the firm bounce in price, given close to half the companies operating in China's Leisure industry have price-to-sales ratios (or "P/S") below 3.3x, you may consider Alpha Group as a stock to potentially avoid with its 4.3x P/S ratio. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's as high as it is.

View our latest analysis for Alpha Group

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

Recent times haven't been great for Alpha Group as its revenue has been rising slower than most other companies. One possibility is that the P/S ratio is high because investors think this lacklustre revenue performance will improve markedly. If not, then existing shareholders may be very nervous about the viability of the share price.

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Alpha Group.

How Is Alpha Group's Revenue Growth Trending?

In order to justify its P/S ratio, Alpha Group would need to produce impressive growth in excess of the industry.

If we review the last year of revenue, the company posted a result that saw barely any deviation from a year ago. Fortunately, a few good years before that means that it was still able to grow revenue by 9.2% in total over the last three years. Accordingly, shareholders probably wouldn't have been overly satisfied with the unstable medium-term growth rates.

Looking ahead now, revenue is anticipated to climb by 25% during the coming year according to the lone analyst following the company. With the industry only predicted to deliver 20%, the company is positioned for a stronger revenue result.

In light of this, it's understandable that Alpha Group's P/S sits above the majority of other companies. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.

What We Can Learn From Alpha Group's P/S?

Alpha Group's P/S is on the rise since its shares have risen strongly. 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.

We've established that Alpha Group maintains its high P/S on the strength of its forecasted revenue growth being higher than the the rest of the Leisure industry, as expected. It appears that shareholders are confident in the company's future revenues, which is propping up the P/S. Unless the analysts have really missed the mark, these strong revenue forecasts should keep the share price buoyant.

Before you settle on your opinion, we've discovered 1 warning sign for Alpha Group that you should be aware of.

If these risks are making you reconsider your opinion on Alpha Group, explore our interactive list of high quality stocks to get an idea of what else is out there.

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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.