Optimistic Investors Push CCT Fortis Holdings Limited (HKG:138) Shares Up 30% But Growth Is Lacking

CCT Fortis Holdings Limited (HKG:138) shareholders would be excited to see that the share price has had a great month, posting a 30% gain and recovering from prior weakness. Still, the 30-day jump doesn't change the fact that longer term shareholders have seen their stock decimated by the 53% share price drop in the last twelve months.

In spite of the firm bounce in price, you could still be forgiven for feeling indifferent about CCT Fortis Holdings' P/S ratio of 0.3x, since the median price-to-sales (or "P/S") ratio for the Industrials industry in Hong Kong is also close to 0.5x. 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 CCT Fortis Holdings

What Does CCT Fortis Holdings' Recent Performance Look Like?

As an illustration, revenue has deteriorated at CCT Fortis Holdings over the last year, which is not ideal at all. One possibility is that the P/S is moderate because investors think the company might still do enough to be in line with the broader industry in the near future. If not, then existing shareholders may be a little nervous about the viability of the share price.

Although there are no analyst estimates available for CCT Fortis 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 Some Revenue Growth Forecasted For CCT Fortis Holdings?

The only time you'd be comfortable seeing a P/S like CCT Fortis Holdings' is when the company's growth is tracking the industry closely.

Retrospectively, the last year delivered a frustrating 25% decrease to the company's top line. Regardless, revenue has managed to lift by a handy 8.2% in aggregate from three years ago, thanks to the earlier period of growth. So we can start by confirming that the company has generally done a good job of growing revenue over that time, even though it had some hiccups along the way.

This is in contrast to the rest of the industry, which is expected to grow by 10% over the next year, materially higher than the company's recent medium-term annualised growth rates.

In light of this, it's curious that CCT Fortis Holdings' P/S sits in line with the majority of other companies. Apparently many investors in the company are less bearish than recent times would indicate and aren't willing to let go of their stock right now. Maintaining these prices will be difficult to achieve as a continuation of recent revenue trends is likely to weigh down the shares eventually.

The Bottom Line On CCT Fortis Holdings' P/S

Its shares have lifted substantially and now CCT Fortis Holdings' P/S is back within range of the industry median. 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.

We've established that CCT Fortis Holdings' average P/S is a bit surprising since its recent three-year growth is lower than the wider industry forecast. When we see weak revenue with slower than industry growth, we suspect the share price is at risk of declining, bringing the P/S back in line with expectations. If recent medium-term revenue trends continue, the probability of a share price decline will become quite substantial, placing shareholders at risk.

Before you take the next step, you should know about the 4 warning signs for CCT Fortis Holdings (2 are a bit unpleasant!) that we have uncovered.

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

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.