Even With A 27% Surge, Cautious Investors Are Not Rewarding Zhidao International (Holdings) Limited's (HKG:1220) Performance Completely

Zhidao International (Holdings) Limited (HKG:1220) shares have continued their recent momentum with a 27% gain in the last month alone. The last month tops off a massive increase of 119% in the last year.

In spite of the firm bounce in price, there still wouldn't be many who think Zhidao International (Holdings)'s price-to-sales (or "P/S") ratio of 0.4x is worth a mention when the median P/S in Hong Kong's Construction industry is similar at about 0.3x. 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.

Check out our latest analysis for Zhidao International (Holdings)

What Does Zhidao International (Holdings)'s Recent Performance Look Like?

Recent times have been quite advantageous for Zhidao International (Holdings) as its revenue has been rising very briskly. It might be that many expect the strong revenue performance to wane, which has kept the share price, and thus the P/S ratio, from rising. If that doesn't eventuate, then existing shareholders have reason to be feeling optimistic about the future direction of the share price.

Want the full picture on earnings, revenue and cash flow for the company? Then our free report on Zhidao International (Holdings) will help you shine a light on its historical performance.

Is There Some Revenue Growth Forecasted For Zhidao International (Holdings)?

In order to justify its P/S ratio, Zhidao International (Holdings) 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 206%. The strong recent performance means it was also able to grow revenue by 300% 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 12% over the next year, materially lower than the company's recent medium-term annualised growth rates.

In light of this, it's curious that Zhidao International (Holdings)'s P/S sits in line with the majority of other companies. It may be that most investors are not convinced the company can maintain its recent growth rates.

The Bottom Line On Zhidao International (Holdings)'s P/S

Its shares have lifted substantially and now Zhidao International (Holdings)'s P/S is back within range of the industry median. While the price-to-sales ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of revenue expectations.

To our surprise, Zhidao International (Holdings) revealed its three-year revenue trends aren't contributing to its P/S as much as we would have predicted, given they look better than current industry expectations. It'd be fair to assume that potential risks the company faces could be the contributing factor to the lower than expected P/S. While recent revenue trends over the past medium-term suggest that the risk of a price decline is low, investors appear to see the likelihood of revenue fluctuations in the future.

Don't forget that there may be other risks. For instance, we've identified 3 warning signs for Zhidao International (Holdings) (2 are potentially serious) you should be aware of.

If these risks are making you reconsider your opinion on Zhidao International (Holdings), 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.