Why We're Not Concerned About Bloks Group Limited's (HKG:325) Share Price

Explore Bloks Group's Fair Values from the Community and select yours

When close to half the companies in the Leisure industry in Hong Kong have price-to-sales ratios (or "P/S") below 0.7x, you may consider Bloks Group Limited (HKG:325) as a stock to avoid entirely with its 12x 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.

We've found 21 US stocks that are forecast to pay a dividend yield of over 6% next year. See the full list for free.

See our latest analysis for Bloks Group

How Bloks Group Has Been Performing

Bloks Group certainly has been doing a good job lately as it's been growing revenue more than most other companies. The P/S is probably high because investors think this strong revenue performance will continue. However, if this isn't the case, investors might get caught out paying too much for the stock.

Keen to find out how analysts think Bloks Group's future stacks up against the industry? In that case, our free report is a great place to start.

Is There Enough Revenue Growth Forecasted For Bloks Group?

There's an inherent assumption that a company should far outperform the industry for P/S ratios like Bloks Group's to be considered reasonable.

If we review the last year of revenue growth, the company posted a terrific increase of 156%. Spectacularly, three year revenue growth has ballooned by several orders of magnitude, thanks in part to the last 12 months of revenue growth. So we can start by confirming that the company has done a tremendous job of growing revenue over that time.

Looking ahead now, revenue is anticipated to climb by 51% each year during the coming three years according to the twelve analysts following the company. Meanwhile, the rest of the industry is forecast to only expand by 4.4% per annum, which is noticeably less attractive.

With this in mind, it's not hard to understand why Bloks Group's P/S is high relative to its industry peers. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.

What Does Bloks Group's P/S Mean For Investors?

Using the price-to-sales ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

As we suspected, our examination of Bloks Group's analyst forecasts revealed that its superior revenue outlook is contributing to its high P/S. Right now shareholders are comfortable with the P/S as they are quite confident future revenues aren't under threat. Unless the analysts have really missed the mark, these strong revenue forecasts should keep the share price buoyant.

There are also other vital risk factors to consider and we've discovered 2 warning signs for Bloks Group (1 is a bit concerning!) that you should be aware of before investing here.

If you're unsure about the strength of Bloks Group's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.