The Market Lifts Feiyang International Holdings Group Limited (HKG:1901) Shares 50% But It Can Do More

The Feiyang International Holdings Group Limited (HKG:1901) share price has done very well over the last month, posting an excellent gain of 50%. Still, the 30-day jump doesn't change the fact that longer term shareholders have seen their stock decimated by the 56% share price drop in the last twelve months.

Even after such a large jump in price, Feiyang International Holdings Group's price-to-sales (or "P/S") ratio of 0.2x might still make it look like a buy right now compared to the Hospitality industry in Hong Kong, where around half of the companies have P/S ratios above 0.7x and even P/S above 3x are quite common. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/S.

Check out our latest analysis for Feiyang International Holdings Group

How Has Feiyang International Holdings Group Performed Recently?

For example, consider that Feiyang International Holdings Group's financial performance has been poor lately as its revenue has been in decline. Perhaps the market believes the recent revenue performance isn't good enough to keep up the industry, causing the P/S ratio to suffer. 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 out of favour.

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

What Are Revenue Growth Metrics Telling Us About The Low P/S?

There's an inherent assumption that a company should underperform the industry for P/S ratios like Feiyang International Holdings Group's to be considered reasonable.

Taking a look back first, the company's revenue growth last year wasn't something to get excited about as it posted a disappointing decline of 13%. The latest three year period has seen an incredible overall rise in revenue, a stark contrast to the last 12 months. So while the company has done a great job in the past, it's somewhat concerning to see revenue growth decline so harshly.

When compared to the industry's one-year growth forecast of 14%, the most recent medium-term revenue trajectory is noticeably more alluring

With this in mind, we find it intriguing that Feiyang International Holdings Group's P/S isn't as high compared to that of its industry peers. Apparently some shareholders believe the recent performance has exceeded its limits and have been accepting significantly lower selling prices.

The Key Takeaway

Feiyang International Holdings Group's stock price has surged recently, but its but its P/S still remains modest. 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.

Our examination of Feiyang International Holdings Group revealed its three-year revenue trends aren't boosting its P/S anywhere near as much as we would have predicted, given they look better than current industry expectations. When we see robust revenue growth that outpaces the industry, we presume that there are notable underlying risks to the company's future performance, which is exerting downward pressure on the P/S ratio. While recent revenue trends over the past medium-term suggest that the risk of a price decline is low, investors appear to perceive a likelihood of revenue fluctuations in the future.

It is also worth noting that we have found 3 warning signs for Feiyang International Holdings Group (1 is significant!) that you need to take into consideration.

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.