Investors Appear Satisfied With Haichang Ocean Park Holdings Ltd.'s (HKG:2255) Prospects

When close to half the companies in the Hospitality industry in Hong Kong have price-to-sales ratios (or "P/S") below 1x, you may consider Haichang Ocean Park Holdings Ltd. (HKG:2255) as a stock to avoid entirely with its 3.2x P/S ratio. However, the P/S might be quite high for a reason and it requires further investigation to determine if it's justified.

See our latest analysis for Haichang Ocean Park Holdings

How Haichang Ocean Park Holdings Has Been Performing

Haichang Ocean Park Holdings certainly has been doing a good job lately as it's been growing revenue more than most other companies. It seems the market expects this form will continue into the future, hence the elevated P/S ratio. If not, then existing shareholders might be a little nervous about the viability of the share price.

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Haichang Ocean Park Holdings.

Do Revenue Forecasts Match The High P/S Ratio?

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

If we review the last year of revenue growth, the company posted a terrific increase of 129%. The latest three year period has also seen an excellent 56% overall rise in revenue, aided by its short-term performance. Accordingly, shareholders would have definitely welcomed those medium-term rates of revenue growth.

Looking ahead now, revenue is anticipated to climb by 24% per year during the coming three years according to the sole analyst following the company. With the industry only predicted to deliver 16% per annum, the company is positioned for a stronger revenue result.

With this information, we can see why Haichang Ocean Park Holdings is trading at such a high P/S compared to the industry. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.

What We Can Learn From Haichang Ocean Park Holdings' P/S?

Typically, we'd caution against reading too much into price-to-sales ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

As we suspected, our examination of Haichang Ocean Park Holdings' analyst forecasts revealed that its superior revenue outlook is contributing to its high P/S. At this stage investors feel the potential for a deterioration in revenues is quite remote, justifying the elevated P/S ratio. Unless these conditions change, they will continue to provide strong support to the share price.

The company's balance sheet is another key area for risk analysis. Our free balance sheet analysis for Haichang Ocean Park Holdings with six simple checks will allow you to discover any risks that could be an issue.

If these risks are making you reconsider your opinion on Haichang Ocean Park 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.