Revenues Tell The Story For Man Shun Group (Holdings) Limited (HKG:1746) As Its Stock Soars 42%

Despite an already strong run, Man Shun Group (Holdings) Limited (HKG:1746) shares have been powering on, with a gain of 42% in the last thirty days. The last month tops off a massive increase of 109% in the last year.

Since its price has surged higher, you could be forgiven for thinking Man Shun Group (Holdings) is a stock not worth researching with a price-to-sales ratios (or "P/S") of 2.1x, considering almost half the companies in Hong Kong's Construction industry have P/S ratios below 0.3x. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the elevated P/S.

Check out our latest analysis for Man Shun Group (Holdings)

What Does Man Shun Group (Holdings)'s P/S Mean For Shareholders?

Revenue has risen firmly for Man Shun Group (Holdings) recently, which is pleasing to see. One possibility is that the P/S ratio is high because investors think this respectable revenue growth will be enough to outperform the broader industry in the near future. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

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 Man Shun Group (Holdings)'s earnings, revenue and cash flow.

What Are Revenue Growth Metrics Telling Us About The High P/S?

Man Shun Group (Holdings)'s P/S ratio would be typical for a company that's expected to deliver solid growth, and importantly, perform better than the industry.

Taking a look back first, we see that the company managed to grow revenues by a handy 12% last year. The latest three year period has also seen an excellent 52% overall rise in revenue, aided somewhat by its short-term performance. Accordingly, shareholders would have definitely welcomed those medium-term rates of revenue growth.

When compared to the industry's one-year growth forecast of 8.9%, the most recent medium-term revenue trajectory is noticeably more alluring

In light of this, it's understandable that Man Shun Group (Holdings)'s P/S sits above the majority of other companies. It seems most investors are expecting this strong growth to continue and are willing to pay more for the stock.

The Bottom Line On Man Shun Group (Holdings)'s P/S

Man Shun Group (Holdings)'s P/S is on the rise since its shares have risen strongly. Using the price-to-sales ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

As we suspected, our examination of Man Shun Group (Holdings) revealed its three-year revenue trends are contributing to its high P/S, given they look better than current industry expectations. At this stage investors feel the potential continued revenue growth in the future is great enough to warrant an inflated P/S. Barring any significant changes to the company's ability to make money, the share price should continue to be propped up.

Before you take the next step, you should know about the 2 warning signs for Man Shun Group (Holdings) (1 doesn't sit too well with us!) that we have uncovered.

Of course, profitable companies with a history of great earnings growth are generally safer bets. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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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.