The Market Lifts China Maple Leaf Educational Systems Limited (HKG:1317) Shares 48% But It Can Do More

Despite an already strong run, China Maple Leaf Educational Systems Limited (HKG:1317) shares have been powering on, with a gain of 48% in the last thirty days. While recent buyers may be laughing, long-term holders might not be as pleased since the recent gain only brings the stock back to where it started a year ago.

In spite of the firm bounce in price, it's still not a stretch to say that China Maple Leaf Educational Systems' price-to-sales (or "P/S") ratio of 1.1x right now seems quite "middle-of-the-road" compared to the Consumer Services industry in Hong Kong, where the median P/S ratio is around 1.3x. 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.

See our latest analysis for China Maple Leaf Educational Systems

How Has China Maple Leaf Educational Systems Performed Recently?

The revenue growth achieved at China Maple Leaf Educational Systems over the last year would be more than acceptable for most companies. It might be that many expect the respectable revenue performance to wane, which has kept the P/S from rising. If that doesn't eventuate, then existing shareholders probably aren't too pessimistic about the future direction of the share price.

Although there are no analyst estimates available for China Maple Leaf Educational Systems, take a look at this free data-rich visualisation to see how the company stacks up on earnings, revenue and cash flow.

Do Revenue Forecasts Match The P/S Ratio?

China Maple Leaf Educational Systems' P/S ratio would be typical for a company that's only expected to deliver moderate growth, and importantly, perform in line with the industry.

If we review the last year of revenue growth, the company posted a terrific increase of 16%. The latest three year period has also seen an excellent 198% overall rise in revenue, aided by its short-term performance. So we can start by confirming that the company has done a great job of growing revenue over that time.

This is in contrast to the rest of the industry, which is expected to grow by 19% over the next year, materially lower than the company's recent medium-term annualised growth rates.

With this information, we find it interesting that China Maple Leaf Educational Systems is trading at a fairly similar P/S compared to the industry. It may be that most investors are not convinced the company can maintain its recent growth rates.

The Final Word

China Maple Leaf Educational Systems' stock has a lot of momentum behind it lately, which has brought its P/S level with the rest of the industry. While the price-to-sales ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of revenue expectations.

To our surprise, China Maple Leaf Educational Systems revealed its three-year revenue trends aren't contributing to its P/S as much as we would have predicted, given they look better than current industry expectations. There could be some unobserved threats to revenue preventing the P/S ratio from matching this positive performance. At least the risk of a price drop looks to be subdued if recent medium-term revenue trends continue, but investors seem to think future revenue could see some volatility.

Don't forget that there may be other risks. For instance, we've identified 5 warning signs for China Maple Leaf Educational Systems (3 are a bit unpleasant) 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.