Market Might Still Lack Some Conviction On HSC Resources Group Limited (HKG:1850) Even After 138% Share Price Boost

Those holding HSC Resources Group Limited (HKG:1850) shares would be relieved that the share price has rebounded 138% in the last thirty days, but it needs to keep going to repair the recent damage it has caused to investor portfolios. Not all shareholders will be feeling jubilant, since the share price is still down a very disappointing 40% in the last twelve months.

Although its price has surged higher, you could still be forgiven for feeling indifferent about HSC Resources Group's P/S ratio of 0.5x, since the median price-to-sales (or "P/S") ratio for the Commercial Services industry in Hong Kong is about the same. 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 HSC Resources Group

What Does HSC Resources Group's Recent Performance Look Like?

The revenue growth achieved at HSC Resources Group over the last year would be more than acceptable for most companies. 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 HSC Resources Group, take a look at this free data-rich visualisation to see how the company stacks up on earnings, revenue and cash flow.

Do Revenue Forecasts Match The P/S Ratio?

HSC Resources Group's P/S ratio would be typical for a company that's only expected to deliver moderate growth, and importantly, perform in line with the industry.

If we review the last year of revenue growth, the company posted a terrific increase of 20%. The strong recent performance means it was also able to grow revenue by 82% in total over the last three years. Accordingly, shareholders would have definitely welcomed those medium-term rates of revenue growth.

Comparing that recent medium-term revenue trajectory with the industry's one-year growth forecast of 9.9% shows it's noticeably more attractive.

With this information, we find it interesting that HSC Resources Group 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 HSC Resources Group's P/S?

Its shares have lifted substantially and now HSC Resources Group's P/S is back within range of the industry median. We'd say the price-to-sales ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

We didn't quite envision HSC Resources Group's 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. It'd be fair to assume that potential risks the company faces could be the contributing factor to the lower than expected P/S. 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 6 warning signs for HSC Resources Group (4 shouldn't be ignored!) that you should be aware of.

If you're unsure about the strength of HSC Resources Group'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.