Investors Appear Satisfied With Pan Asia Environmental Protection Group Limited's (HKG:556) Prospects

Pan Asia Environmental Protection Group Limited's (HKG:556) price-to-sales (or "P/S") ratio of 1.4x may not look like an appealing investment opportunity when you consider close to half the companies in the Commercial Services industry in Hong Kong have P/S ratios below 0.5x. However, the P/S might be high for a reason and it requires further investigation to determine if it's justified.

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Check out our latest analysis for Pan Asia Environmental Protection Group

How Has Pan Asia Environmental Protection Group Performed Recently?

The revenue growth achieved at Pan Asia Environmental Protection Group over the last year would be more than acceptable for most companies. It might be that many expect the respectable revenue performance to beat most other companies over the coming period, which has increased investors’ willingness to pay up for the stock. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

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

How Is Pan Asia Environmental Protection Group's Revenue Growth Trending?

In order to justify its P/S ratio, Pan Asia Environmental Protection Group would need to produce impressive growth in excess of the industry.

If we review the last year of revenue growth, the company posted a worthy increase of 14%. The latest three year period has seen an incredible overall rise in revenue, even though the last 12 month performance was only fair. 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 5.3%, the most recent medium-term revenue trajectory is noticeably more alluring

In light of this, it's understandable that Pan Asia Environmental Protection Group's P/S sits above the majority of other companies. Presumably shareholders aren't keen to offload something they believe will continue to outmanoeuvre the wider industry.

The Final Word

Generally, our preference is to limit the use of the price-to-sales ratio to establishing what the market thinks about the overall health of a company.

It's no surprise that Pan Asia Environmental Protection Group can support its high P/S given the strong revenue growth its experienced over the last three-year is superior to the current industry outlook. 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.

Before you settle on your opinion, we've discovered 1 warning sign for Pan Asia Environmental Protection Group that you should be aware of.

If you're unsure about the strength of Pan Asia Environmental Protection 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.