Revenues Not Telling The Story For Fosun International Limited (HKG:656) After Shares Rise 36%

Fosun International Limited (HKG:656) shareholders would be excited to see that the share price has had a great month, posting a 36% gain and recovering from prior weakness. Taking a wider view, although not as strong as the last month, the full year gain of 15% is also fairly reasonable.

Although its price has surged higher, there still wouldn't be many who think Fosun International's price-to-sales (or "P/S") ratio of 0.2x is worth a mention when the median P/S in Hong Kong's Industrials industry is similar at about 0.5x. While this might not raise any eyebrows, if the P/S ratio is not justified investors could be missing out on a potential opportunity or ignoring looming disappointment.

View our latest analysis for Fosun International

How Has Fosun International Performed Recently?

There hasn't been much to differentiate Fosun International's and the industry's revenue growth lately. The P/S ratio is probably moderate because investors think this modest revenue performance will continue. If this is the case, then at least existing shareholders won't be losing sleep over the current share price.

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

How Is Fosun International's Revenue Growth Trending?

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

Taking a look back first, we see that the company managed to grow revenues by a handy 3.7% last year. Pleasingly, revenue has also lifted 38% in aggregate from three years ago, partly thanks to the last 12 months of growth. So we can start by confirming that the company has done a great job of growing revenues over that time.

Shifting to the future, estimates from the six analysts covering the company suggest revenue should grow by 7.6% over the next year. That's shaping up to be materially lower than the 12% growth forecast for the broader industry.

With this information, we find it interesting that Fosun International is trading at a fairly similar P/S compared to the industry. Apparently many investors in the company are less bearish than analysts indicate and aren't willing to let go of their stock right now. Maintaining these prices will be difficult to achieve as this level of revenue growth is likely to weigh down the shares eventually.

The Final Word

Its shares have lifted substantially and now Fosun International's P/S is back within range of the industry median. 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.

When you consider that Fosun International's revenue growth estimates are fairly muted compared to the broader industry, it's easy to see why we consider it unexpected to be trading at its current P/S ratio. At present, we aren't confident in the P/S as the predicted future revenues aren't likely to support a more positive sentiment for long. A positive change is needed in order to justify the current price-to-sales ratio.

Before you settle on your opinion, we've discovered 1 warning sign for Fosun International that you should be aware of.

If you're unsure about the strength of Fosun International'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.