Subdued Growth No Barrier To Grown Up Group Investment Holdings Limited (HKG:1842) With Shares Advancing 49%

Despite an already strong run, Grown Up Group Investment Holdings Limited (HKG:1842) shares have been powering on, with a gain of 49% in the last thirty days. The bad news is that even after the stocks recovery in the last 30 days, shareholders are still underwater by about 5.3% over the last year.

Even after such a large jump in price, it's still not a stretch to say that Grown Up Group Investment Holdings' price-to-sales (or "P/S") ratio of 0.5x right now seems quite "middle-of-the-road" compared to the Luxury industry in Hong Kong, where the median P/S ratio is around 0.7x. 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.

View our latest analysis for Grown Up Group Investment Holdings

What Does Grown Up Group Investment Holdings' Recent Performance Look Like?

For example, consider that Grown Up Group Investment Holdings' financial performance has been poor lately as its revenue has been in decline. It might be that many expect the company to put the disappointing revenue performance behind them over the coming period, which has kept the P/S from falling. If you like the company, you'd at least be hoping this is the case so that you could potentially pick up some stock while it's not quite in favour.

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

How Is Grown Up Group Investment Holdings' Revenue Growth Trending?

There's an inherent assumption that a company should be matching the industry for P/S ratios like Grown Up Group Investment Holdings' to be considered reasonable.

In reviewing the last year of financials, we were disheartened to see the company's revenues fell to the tune of 22%. This has soured the latest three-year period, which nevertheless managed to deliver a decent 16% overall rise in revenue. Although it's been a bumpy ride, it's still fair to say the revenue growth recently has been mostly respectable for the company.

This is in contrast to the rest of the industry, which is expected to grow by 12% over the next year, materially higher than the company's recent medium-term annualised growth rates.

With this in mind, we find it intriguing that Grown Up Group Investment Holdings' P/S is comparable to that of its industry peers. It seems most investors are ignoring the fairly limited recent growth rates and are willing to pay up for exposure to the stock. They may be setting themselves up for future disappointment if the P/S falls to levels more in line with recent growth rates.

What We Can Learn From Grown Up Group Investment Holdings' P/S?

Grown Up Group Investment Holdings' stock has a lot of momentum behind it lately, which has brought its P/S level with the rest of 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 Grown Up Group Investment 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.

Before you settle on your opinion, we've discovered 2 warning signs for Grown Up Group Investment Holdings (1 shouldn't be ignored!) that you should be aware of.

If these risks are making you reconsider your opinion on Grown Up Group Investment Holdings, explore our interactive list of high quality stocks to get an idea of what else is out there.

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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.