A Piece Of The Puzzle Missing From CSSC Offshore & Marine Engineering (Group) Company Limited's (HKG:317) 31% Share Price Climb

CSSC Offshore & Marine Engineering (Group) Company Limited (HKG:317) shares have continued their recent momentum with a 31% gain in the last month alone. Taking a wider view, although not as strong as the last month, the full year gain of 23% is also fairly reasonable.

Even after such a large jump in price, there still wouldn't be many who think CSSC Offshore & Marine Engineering (Group)'s price-to-sales (or "P/S") ratio of 1.1x is worth a mention when the median P/S in Hong Kong's Machinery industry is similar at about 0.6x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/S.

See our latest analysis for CSSC Offshore & Marine Engineering (Group)

What Does CSSC Offshore & Marine Engineering (Group)'s Recent Performance Look Like?

The revenue growth achieved at CSSC Offshore & Marine Engineering (Group) over the last year would be more than acceptable for most companies. It might be that many expect the respectable revenue performance to wane, which has kept the P/S from rising. Those who are bullish on CSSC Offshore & Marine Engineering (Group) 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 CSSC Offshore & Marine Engineering (Group)'s earnings, revenue and cash flow.

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

In order to justify its P/S ratio, CSSC Offshore & Marine Engineering (Group) would need to produce growth that's similar to the industry.

Taking a look back first, we see that the company grew revenue by an impressive 26% last year. The strong recent performance means it was also able to grow revenue by 53% in total over the last three years. So we can start by confirming that the company has done a great job of growing revenue over that time.

This is in contrast to the rest of the industry, which is expected to grow by 12% over the next year, materially lower than the company's recent medium-term annualised growth rates.

In light of this, it's curious that CSSC Offshore & Marine Engineering (Group)'s P/S sits in line with the majority of other companies. It may be that most investors are not convinced the company can maintain its recent growth rates.

What We Can Learn From CSSC Offshore & Marine Engineering (Group)'s P/S?

CSSC Offshore & Marine Engineering (Group) appears to be back in favour with a solid price jump bringing its P/S back in line with other companies in the industry 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.

We didn't quite envision CSSC Offshore & Marine Engineering (Group)'s P/S sitting in line with the wider industry, considering the revenue growth over the last three-year is higher than the current industry outlook. There could be some unobserved threats to revenue preventing the P/S ratio from matching this positive performance. While recent revenue trends over the past medium-term suggest that the risk of a price decline is low, investors appear to see the likelihood of revenue fluctuations in the future.

We don't want to rain on the parade too much, but we did also find 1 warning sign for CSSC Offshore & Marine Engineering (Group) that you need to be mindful of.

If these risks are making you reconsider your opinion on CSSC Offshore & Marine Engineering (Group), explore our interactive list of high quality stocks to get an idea of what else is out there.

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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.