Swire Pacific Limited's (HKG:19) Popularity With Investors Is Clear

There wouldn't be many who think Swire Pacific Limited's (HKG:19) price-to-sales (or "P/S") ratio of 1x is worth a mention when the median P/S for the Industrials industry in Hong Kong is similar at about 0.7x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/S.

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See our latest analysis for Swire Pacific

What Does Swire Pacific's P/S Mean For Shareholders?

Recent times haven't been great for Swire Pacific as its revenue has been rising slower than most other companies. One possibility is that the P/S ratio is moderate because investors think this lacklustre revenue performance will turn around. If not, then existing shareholders may be a little nervous about the viability of the share price.

Keen to find out how analysts think Swire Pacific's future stacks up against the industry? In that case, our free report is a great place to start.

Do Revenue Forecasts Match The P/S Ratio?

In order to justify its P/S ratio, Swire Pacific would need to produce growth that's similar to the industry.

Retrospectively, the last year delivered a decent 6.4% gain to the company's revenues. Still, lamentably revenue has fallen 1.5% in aggregate from three years ago, which is disappointing. So unfortunately, we have to acknowledge that the company has not done a great job of growing revenue over that time.

Turning to the outlook, the next three years should generate growth of 6.8% each year as estimated by the seven analysts watching the company. That's shaping up to be similar to the 6.9% per year growth forecast for the broader industry.

In light of this, it's understandable that Swire Pacific's P/S sits in line with the majority of other companies. It seems most investors are expecting to see average future growth and are only willing to pay a moderate amount for the stock.

The Key Takeaway

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.

A Swire Pacific's P/S seems about right to us given the knowledge that analysts are forecasting a revenue outlook that is similar to the Industrials industry. At this stage investors feel the potential for an improvement or deterioration in revenue isn't great enough to push P/S in a higher or lower direction. If all things remain constant, the possibility of a drastic share price movement remains fairly remote.

Before you settle on your opinion, we've discovered 3 warning signs for Swire Pacific that you should be aware of.

If you're unsure about the strength of Swire Pacific's 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.