Cornerstone Technologies Holdings Limited (HKG:8391) Not Lagging Industry On Growth Or Pricing

When you see that almost half of the companies in the Electrical industry in Hong Kong have price-to-sales ratios (or "P/S") below 0.5x, Cornerstone Technologies Holdings Limited (HKG:8391) looks to be giving off strong sell signals with its 2.9x P/S ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly elevated P/S.

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View our latest analysis for Cornerstone Technologies Holdings

How Cornerstone Technologies Holdings Has Been Performing

With revenue growth that's exceedingly strong of late, Cornerstone Technologies Holdings has been doing very well. The P/S ratio is probably high because investors think this strong revenue growth will be enough to outperform the broader industry in the near future. However, if this isn't the case, investors might get caught out paying too much for the stock.

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 Cornerstone Technologies Holdings' earnings, revenue and cash flow.

Is There Enough Revenue Growth Forecasted For Cornerstone Technologies Holdings?

The only time you'd be truly comfortable seeing a P/S as steep as Cornerstone Technologies Holdings' is when the company's growth is on track to outshine the industry decidedly.

Retrospectively, the last year delivered an exceptional 96% gain to the company's top line. Pleasingly, revenue has also lifted 178% in aggregate from three years ago, thanks to the last 12 months of growth. So we can start by confirming that the company has done a great job of growing revenue over that time.

When compared to the industry's one-year growth forecast of 15%, the most recent medium-term revenue trajectory is noticeably more alluring

With this in consideration, it's not hard to understand why Cornerstone Technologies Holdings' P/S is high relative to its industry peers. Presumably shareholders aren't keen to offload something they believe will continue to outmanoeuvre the wider industry.

The Final Word

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.

We've established that Cornerstone Technologies Holdings maintains its high P/S on the strength of its recent three-year growth being higher than the wider industry forecast, as expected. At this stage investors feel the potential continued revenue growth in the future is great enough to warrant an inflated P/S. Unless the recent medium-term conditions change, they will continue to provide strong support to the share price.

And what about other risks? Every company has them, and we've spotted 3 warning signs for Cornerstone Technologies Holdings (of which 2 are a bit unpleasant!) you should know about.

If you're unsure about the strength of Cornerstone Technologies Holdings' 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.