Sam Woo Construction Group Limited's (HKG:3822) Shares Leap 34% Yet They're Still Not Telling The Full Story

Sam Woo Construction Group Limited (HKG:3822) shares have continued their recent momentum with a 34% 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.

In spite of the firm bounce in price, there still wouldn't be many who think Sam Woo Construction Group's price-to-sales (or "P/S") ratio of 0.1x is worth a mention when the median P/S in Hong Kong's Construction industry is similar at about 0.4x. 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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View our latest analysis for Sam Woo Construction Group

How Sam Woo Construction Group Has Been Performing

With revenue growth that's exceedingly strong of late, Sam Woo Construction Group has been doing very well. Perhaps the market is expecting future revenue performance to taper off, which has kept the P/S from rising. Those who are bullish on Sam Woo Construction 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 Sam Woo Construction Group's earnings, revenue and cash flow.

Is There Some Revenue Growth Forecasted For Sam Woo Construction Group?

The only time you'd be comfortable seeing a P/S like Sam Woo Construction 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 92%. Pleasingly, revenue has also lifted 143% in aggregate from three years ago, thanks to the last 12 months of growth. Therefore, it's fair to say the revenue growth recently has been superb for the company.

This is in contrast to the rest of the industry, which is expected to grow by 18% over the next year, materially lower than the company's recent medium-term annualised growth rates.

In light of this, it's curious that Sam Woo Construction 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.

The Final Word

Sam Woo Construction Group's stock has a lot of momentum behind it lately, which has brought its P/S level with the rest of the industry. While the price-to-sales ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of revenue expectations.

To our surprise, Sam Woo Construction Group revealed its three-year revenue trends aren't contributing to its P/S as much as we would have predicted, given they look better than current industry expectations. When we see strong revenue with faster-than-industry growth, we can only assume potential risks are what might be placing pressure on the P/S ratio. 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.

Before you settle on your opinion, we've discovered 3 warning signs for Sam Woo Construction Group (2 can't be ignored!) that you should be aware of.

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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.