Market Might Still Lack Some Conviction On Dragon Rise Group Holdings Limited (HKG:6829) Even After 39% Share Price Boost

Dragon Rise Group Holdings Limited (HKG:6829) shares have continued their recent momentum with a 39% gain in the last month alone. The last 30 days were the cherry on top of the stock's 340% gain in the last year, which is nothing short of spectacular.

In spite of the firm bounce in price, you could still be forgiven for feeling indifferent about Dragon Rise Group Holdings' P/S ratio of 0.6x, since the median price-to-sales (or "P/S") ratio for the Construction industry in Hong Kong is also close to 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 Dragon Rise Group Holdings

How Dragon Rise Group Holdings Has Been Performing

Recent times have been quite advantageous for Dragon Rise Group Holdings as its revenue has been rising very briskly. It might be that many expect the strong revenue performance to wane, which has kept the share price, and thus the P/S ratio, from rising. Those who are bullish on Dragon Rise Group Holdings 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 Dragon Rise Group Holdings' earnings, revenue and cash flow.

Do Revenue Forecasts Match The P/S Ratio?

In order to justify its P/S ratio, Dragon Rise Group Holdings 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 39% last year. Pleasingly, revenue has also lifted 114% 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.

When compared to the industry's one-year growth forecast of 18%, the most recent medium-term revenue trajectory is noticeably more alluring

With this information, we find it interesting that Dragon Rise Group Holdings is trading at a fairly similar P/S compared to the industry. It may be that most investors are not convinced the company can maintain its recent growth rates.

The Key Takeaway

Dragon Rise Group Holdings appears to be back in favour with a solid price jump bringing its P/S back in line with other companies in the industry Typically, we'd caution against reading too much into price-to-sales ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

We've established that Dragon Rise Group Holdings currently trades on a lower than expected P/S since its recent three-year growth is higher than the wider industry forecast. It'd be fair to assume that potential risks the company faces could be the contributing factor to the lower than expected P/S. It appears some are indeed anticipating revenue instability, because the persistence of these recent medium-term conditions would normally provide a boost to the share price.

Don't forget that there may be other risks. For instance, we've identified 4 warning signs for Dragon Rise Group Holdings (3 make us uncomfortable) you should be aware of.

If these risks are making you reconsider your opinion on Dragon Rise Group Holdings, 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.