Optimistic Investors Push In Construction Holdings Limited (HKG:1500) Shares Up 38% But Growth Is Lacking

The In Construction Holdings Limited (HKG:1500) share price has done very well over the last month, posting an excellent gain of 38%. Not all shareholders will be feeling jubilant, since the share price is still down a very disappointing 27% in the last twelve months.

Although its price has surged higher, you could still be forgiven for feeling indifferent about In Construction Holdings' P/S ratio of 0.3x, since the median price-to-sales (or "P/S") ratio for the Construction industry in Hong Kong is about the same. Although, it's not wise to simply ignore the P/S without explanation as investors may be disregarding a distinct opportunity or a costly mistake.

View our latest analysis for In Construction Holdings

How In Construction Holdings Has Been Performing

The revenue growth achieved at In Construction Holdings over the last year would be more than acceptable for most companies. Perhaps the market is expecting future revenue performance to only keep up with the broader industry, which has keeping the P/S in line with expectations. Those who are bullish on In Construction Holdings will be hoping that this isn't the case, so that they can pick up the stock at a lower valuation.

We don't have analyst forecasts, but you can see how recent trends are setting up the company for the future by checking out our free report on In Construction Holdings' earnings, revenue and cash flow.

Is There Some Revenue Growth Forecasted For In Construction Holdings?

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

Taking a look back first, we see that the company managed to grow revenues by a handy 11% last year. However, this wasn't enough as the latest three year period has seen an unpleasant 33% overall drop in revenue. So unfortunately, we have to acknowledge that the company has not done a great job of growing revenue over that time.

Comparing that to the industry, which is predicted to deliver 11% growth in the next 12 months, the company's downward momentum based on recent medium-term revenue results is a sobering picture.

With this information, we find it concerning that In Construction Holdings is trading at a fairly similar P/S compared to the industry. It seems most investors are ignoring the recent poor growth rate and are hoping for a turnaround in the company's business prospects. There's a good chance existing shareholders are setting themselves up for future disappointment if the P/S falls to levels more in line with the recent negative growth rates.

What We Can Learn From In Construction Holdings' P/S?

In Construction Holdings' stock has a lot of momentum behind it lately, which has brought its P/S level with the rest of the industry. Generally, our preference is to limit the use of the price-to-sales ratio to establishing what the market thinks about the overall health of a company.

We find it unexpected that In Construction Holdings trades at a P/S ratio that is comparable to the rest of the industry, despite experiencing declining revenues during the medium-term, while the industry as a whole is expected to grow. Even though it matches the industry, we're uncomfortable with the current P/S ratio, as this dismal revenue performance is unlikely to support a more positive sentiment for long. Unless the the circumstances surrounding the recent medium-term improve, it wouldn't be wrong to expect a a difficult period ahead for the company's shareholders.

You should always think about risks. Case in point, we've spotted 3 warning signs for In Construction Holdings you should be aware of, and 1 of them is a bit unpleasant.

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.

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.