GME Group Holdings Limited (HKG:8188) Soars 41% But It's A Story Of Risk Vs Reward

GME Group Holdings Limited (HKG:8188) shareholders have had their patience rewarded with a 41% share price jump in the last month. The annual gain comes to 266% following the latest surge, making investors sit up and take notice.

Although its price has surged higher, there still wouldn't be many who think GME Group Holdings' price-to-sales (or "P/S") ratio of 0.3x is worth a mention when it essentially matches the median P/S in Hong Kong's Construction industry. 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.

See our latest analysis for GME Group Holdings

What Does GME Group Holdings' Recent Performance Look Like?

Revenue has risen firmly for GME Group Holdings recently, which is pleasing to see. It might be that many expect the respectable revenue performance to wane, which has kept the P/S from rising. If that doesn't eventuate, then existing shareholders probably aren't too pessimistic about the future direction of the share price.

Although there are no analyst estimates available for GME Group Holdings, take a look at this free data-rich visualisation to see how the company stacks up on earnings, revenue and cash flow.

Is There Some Revenue Growth Forecasted For GME Group Holdings?

The only time you'd be comfortable seeing a P/S like GME Group Holdings' 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 25%. Spectacularly, three year revenue growth has ballooned by several orders of magnitude, thanks in part to the last 12 months of revenue growth. Accordingly, shareholders would have been over the moon with those medium-term rates of revenue growth.

Comparing that recent medium-term revenue trajectory with the industry's one-year growth forecast of 11% shows it's noticeably more attractive.

With this information, we find it interesting that GME 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.

What We Can Learn From GME Group Holdings' P/S?

GME Group Holdings' stock has a lot of momentum behind it lately, which has brought its P/S level with the rest of 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 didn't quite envision GME Group Holdings' 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. 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.

We don't want to rain on the parade too much, but we did also find 5 warning signs for GME Group Holdings (2 are a bit concerning!) that you need to be mindful of.

If strong companies turning a profit tickle your fancy, then you'll want to check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).

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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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com