Envision Greenwise Holdings Limited's (HKG:1783) 45% Jump Shows Its Popularity With Investors

Envision Greenwise Holdings Limited (HKG:1783) shares have continued their recent momentum with a 45% gain in the last month alone. The last month tops off a massive increase of 234% in the last year.

After such a large jump in price, given around half the companies in Hong Kong's Construction industry have price-to-sales ratios (or "P/S") below 0.3x, you may consider Envision Greenwise Holdings as a stock to avoid entirely with its 6.6x P/S ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly elevated P/S.

View our latest analysis for Envision Greenwise Holdings

What Does Envision Greenwise Holdings' P/S Mean For Shareholders?

As an illustration, revenue has deteriorated at Envision Greenwise Holdings over the last year, which is not ideal at all. Perhaps the market believes the company can do enough to outperform the rest of the industry in the near future, which is keeping the P/S ratio high. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

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

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

The only time you'd be truly comfortable seeing a P/S as steep as Envision Greenwise Holdings' is when the company's growth is on track to outshine the industry decidedly.

Taking a look back first, the company's revenue growth last year wasn't something to get excited about as it posted a disappointing decline of 41%. Still, the latest three year period has seen an excellent 60% overall rise in revenue, in spite of its unsatisfying short-term performance. Although it's been a bumpy ride, it's still fair to say the revenue growth recently has been more than adequate for the company.

Comparing that recent medium-term revenue trajectory with the industry's one-year growth forecast of 13% shows it's noticeably more attractive.

With this in consideration, it's not hard to understand why Envision Greenwise Holdings' P/S is high relative to its industry peers. It seems most investors are expecting this strong growth to continue and are willing to pay more for the stock.

What We Can Learn From Envision Greenwise Holdings' P/S?

Envision Greenwise Holdings' P/S has grown nicely over the last month thanks to a handy boost in the share price. 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.

As we suspected, our examination of Envision Greenwise 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. Unless the recent medium-term conditions change, they will continue to provide strong support to the share price.

You need to take note of risks, for example - Envision Greenwise Holdings has 3 warning signs (and 1 which is a bit unpleasant) we think you should know about.

If you're unsure about the strength of Envision Greenwise Holdings' business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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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.