Carry Wealth Holdings Limited (HKG:643) Stock Rockets 35% As Investors Are Less Pessimistic Than Expected

Carry Wealth Holdings Limited (HKG:643) shareholders are no doubt pleased to see that the share price has bounced 35% in the last month, although it is still struggling to make up recently lost ground. Notwithstanding the latest gain, the annual share price return of 4.8% isn't as impressive.

In spite of the firm bounce in price, there still wouldn't be many who think Carry Wealth Holdings' price-to-sales (or "P/S") ratio of 0.3x is worth a mention when the median P/S in Hong Kong's Luxury industry is similar at about 0.6x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/S.

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See our latest analysis for Carry Wealth Holdings

How Carry Wealth Holdings Has Been Performing

With revenue growth that's exceedingly strong of late, Carry Wealth Holdings has been doing very well. The P/S is probably moderate because investors think this strong revenue growth might not be enough to outperform the broader industry in the near future. If you like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's not quite in favour.

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 Carry Wealth Holdings' earnings, revenue and cash flow.

How Is Carry Wealth Holdings' Revenue Growth Trending?

The only time you'd be comfortable seeing a P/S like Carry Wealth Holdings' is when the company's growth is tracking the industry closely.

Retrospectively, the last year delivered an exceptional 35% gain to the company's top line. Pleasingly, revenue has also lifted 51% in aggregate from three years ago, thanks to the last 12 months of growth. So we can start by confirming that the company has done a great job of growing revenue over that time.

Comparing the recent medium-term revenue trends against the industry's one-year growth forecast of 27% shows it's noticeably less attractive.

In light of this, it's curious that Carry Wealth Holdings' P/S sits in line with the majority of other companies. 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 Does Carry Wealth Holdings' P/S Mean For Investors?

Its shares have lifted substantially and now Carry Wealth Holdings' P/S is back within range of the industry median. 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.

Our examination of Carry Wealth Holdings revealed its poor three-year revenue trends aren't resulting in a lower P/S as per our expectations, given they look worse than current industry outlook. When we see weak revenue with slower than industry growth, we suspect the share price is at risk of declining, bringing the P/S back in line with expectations. Unless there is a significant improvement in the company's medium-term performance, it will be difficult to prevent the P/S ratio from declining to a more reasonable level.

It's always necessary to consider the ever-present spectre of investment risk. We've identified 3 warning signs with Carry Wealth Holdings (at least 2 which are potentially serious), and understanding these should be part of your investment process.

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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.