Xinhua News Media Holdings Limited (HKG:309) Stock Rockets 35% As Investors Are Less Pessimistic Than Expected

Xinhua News Media Holdings Limited (HKG:309) shareholders have had their patience rewarded with a 35% share price jump in the last month. Taking a wider view, although not as strong as the last month, the full year gain of 11% is also fairly reasonable.

Even after such a large jump in price, you could still be forgiven for feeling indifferent about Xinhua News Media Holdings' P/S ratio of 0.3x, since the median price-to-sales (or "P/S") ratio for the Commercial Services 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.

See our latest analysis for Xinhua News Media Holdings

How Xinhua News Media Holdings Has Been Performing

The revenue growth achieved at Xinhua News Media Holdings over the last year would be more than acceptable for most companies. Perhaps the market is expecting future revenue performance to only keep up with the broader industry, which has keeping the P/S in line with expectations. If that doesn't eventuate, then existing shareholders probably aren't too pessimistic about the future direction of the share price.

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 Xinhua News Media Holdings' earnings, revenue and cash flow.

What Are Revenue Growth Metrics Telling Us About The P/S?

The only time you'd be comfortable seeing a P/S like Xinhua News Media 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 worthy increase of 11%. Although, the latest three year period in total hasn't been as good as it didn't manage to provide any growth at all. Accordingly, shareholders probably wouldn't have been overly satisfied with the unstable medium-term growth rates.

Comparing the recent medium-term revenue trends against the industry's one-year growth forecast of 5.8% shows it's noticeably less attractive.

With this information, we find it interesting that Xinhua News Media Holdings is trading at a fairly similar P/S compared to the industry. It seems most investors are ignoring the fairly limited recent growth rates and are willing to pay up for exposure to the stock. Maintaining these prices will be difficult to achieve as a continuation of recent revenue trends is likely to weigh down the shares eventually.

What Does Xinhua News Media Holdings' P/S Mean For Investors?

Xinhua News Media 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 It's argued the price-to-sales ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

We've established that Xinhua News Media Holdings' average P/S is a bit surprising since its recent three-year growth is lower than the wider industry forecast. Right now we are uncomfortable with the P/S as this revenue performance isn't likely to support a more positive sentiment for long. Unless the recent medium-term conditions improve, it's hard to accept the current share price as fair value.

You should always think about risks. Case in point, we've spotted 2 warning signs for Xinhua News Media Holdings you should be aware of.

If companies with solid past earnings growth is up your alley, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

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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.