Market Might Still Lack Some Conviction On FS Development Investment Holdings (SZSE:300071) Even After 27% Share Price Boost

Those holding FS Development Investment Holdings (SZSE:300071) shares would be relieved that the share price has rebounded 27% in the last thirty days, but it needs to keep going to repair the recent damage it has caused to investor portfolios. Not all shareholders will be feeling jubilant, since the share price is still down a very disappointing 36% in the last twelve months.

Even after such a large jump in price, FS Development Investment Holdings' price-to-sales (or "P/S") ratio of 1.6x might still make it look like a buy right now compared to the Media industry in China, where around half of the companies have P/S ratios above 2.2x and even P/S above 5x are quite common. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/S.

View our latest analysis for FS Development Investment Holdings

How Has FS Development Investment Holdings Performed Recently?

FS Development Investment Holdings has been doing a good job lately as it's been growing revenue at a solid pace. It might be that many expect the respectable revenue performance to degrade substantially, which has repressed the P/S. 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 out of favour.

Although there are no analyst estimates available for FS Development Investment Holdings, take a look at this free data-rich visualisation to see how the company stacks up on earnings, revenue and cash flow.

Is There Any Revenue Growth Forecasted For FS Development Investment Holdings?

There's an inherent assumption that a company should underperform the industry for P/S ratios like FS Development Investment Holdings' to be considered reasonable.

Taking a look back first, we see that the company grew revenue by an impressive 26% last year. The strong recent performance means it was also able to grow revenue by 46% in total over the last three years. Therefore, it's fair to say the revenue growth recently has been superb for the company.

This is in contrast to the rest of the industry, which is expected to grow by 11% over the next year, materially lower than the company's recent medium-term annualised growth rates.

With this in mind, we find it intriguing that FS Development Investment Holdings' P/S isn't as high compared to that of its industry peers. Apparently some shareholders believe the recent performance has exceeded its limits and have been accepting significantly lower selling prices.

The Final Word

FS Development Investment Holdings' stock price has surged recently, but its but its P/S still remains modest. We'd say the price-to-sales ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

We're very surprised to see FS Development Investment Holdings currently trading on a much lower than expected P/S since its recent three-year growth is higher than the wider industry forecast. When we see strong revenue with faster-than-industry growth, we assume there are some significant underlying risks to the company's ability to make money which is applying downwards pressure on the P/S ratio. It appears many are indeed anticipating revenue instability, because the persistence of these recent medium-term conditions would normally provide a boost to the share price.

It's always necessary to consider the ever-present spectre of investment risk. We've identified 2 warning signs with FS Development Investment Holdings, and understanding these should be part of your investment process.

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.