CSSC Offshore & Marine Engineering (Group) Company Limited's (HKG:317) Shares Climb 28% But Its Business Is Yet to Catch Up

CSSC Offshore & Marine Engineering (Group) Company Limited (HKG:317) shareholders would be excited to see that the share price has had a great month, posting a 28% gain and recovering from prior weakness. The last 30 days bring the annual gain to a very sharp 56%.

Although its price has surged higher, you could still be forgiven for feeling indifferent about CSSC Offshore & Marine Engineering (Group)'s P/S ratio of 0.9x, since the median price-to-sales (or "P/S") ratio for the Machinery industry in Hong Kong is also close to 0.6x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/S.

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

What Does CSSC Offshore & Marine Engineering (Group)'s P/S Mean For Shareholders?

The revenue growth achieved at CSSC Offshore & Marine Engineering (Group) 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. If you like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's not quite in favour.

Although there are no analyst estimates available for CSSC Offshore & Marine Engineering (Group), take a look at this free data-rich visualisation to see how the company stacks up on earnings, revenue and cash flow.

Do Revenue Forecasts Match The P/S Ratio?

The only time you'd be comfortable seeing a P/S like CSSC Offshore & Marine Engineering (Group)'s is when the company's growth is tracking the industry closely.

If we review the last year of revenue growth, the company posted a terrific increase of 26%. Despite this strong recent growth, it's still struggling to catch up as its three-year revenue frustratingly shrank by 2.4% overall. Therefore, it's fair to say the revenue growth recently has been undesirable for the company.

Comparing that to the industry, which is predicted to deliver 13% growth in the next 12 months, the company's downward momentum based on recent medium-term revenue results is a sobering picture.

In light of this, it's somewhat alarming that CSSC Offshore & Marine Engineering (Group)'s P/S sits in line with the majority of other companies. Apparently many investors in the company are way less bearish than recent times would indicate and aren't willing to let go of their stock right now. Only the boldest would assume these prices are sustainable as a continuation of recent revenue trends is likely to weigh on the share price eventually.

The Bottom Line On CSSC Offshore & Marine Engineering (Group)'s P/S

Its shares have lifted substantially and now CSSC Offshore & Marine Engineering (Group)'s P/S is back within range of the industry median. We'd say the price-to-sales ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

Our look at CSSC Offshore & Marine Engineering (Group) revealed its shrinking revenues over the medium-term haven't impacted the P/S as much as we anticipated, given the industry is set 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 recent medium-term conditions improve markedly, investors will have a hard time accepting the share price as fair value.

You should always think about risks. Case in point, we've spotted 1 warning sign for CSSC Offshore & Marine Engineering (Group) you should be aware 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.

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.