Revenues Not Telling The Story For TradeGo FinTech Limited (HKG:8017) After Shares Rise 50%

Explore TradeGo FinTech's Fair Values from the Community and select yours

TradeGo FinTech Limited (HKG:8017) shares have continued their recent momentum with a 50% gain in the last month alone. The last 30 days were the cherry on top of the stock's 707% gain in the last year, which is nothing short of spectacular.

Since its price has surged higher, TradeGo FinTech's price-to-sales (or "P/S") ratio of 8x might make it look like a strong sell right now compared to other companies in the Capital Markets industry in Hong Kong, where around half of the companies have P/S ratios below 5x and even P/S below 2x are quite common. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's so lofty.

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See our latest analysis for TradeGo FinTech

How TradeGo FinTech Has Been Performing

With revenue growth that's superior to most other companies of late, TradeGo FinTech has been doing relatively well. It seems the market expects this form will continue into the future, hence the elevated P/S ratio. However, if this isn't the case, investors might get caught out paying too much for the stock.

If you'd like to see what analysts are forecasting going forward, you should check out our free report on TradeGo FinTech.

How Is TradeGo FinTech's Revenue Growth Trending?

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

If we review the last year of revenue growth, the company posted a terrific increase of 97%. The strong recent performance means it was also able to grow revenue by 58% in total over the last three years. So we can start by confirming that the company has done a great job of growing revenue over that time.

Turning to the outlook, the next year should generate growth of 25% as estimated by the only analyst watching the company. That's shaping up to be materially lower than the 43% growth forecast for the broader industry.

With this information, we find it concerning that TradeGo FinTech is trading at a P/S higher than the industry. It seems most investors are hoping for a turnaround in the company's business prospects, but the analyst cohort is not so confident this will happen. Only the boldest would assume these prices are sustainable as this level of revenue growth is likely to weigh heavily on the share price eventually.

The Bottom Line On TradeGo FinTech's P/S

TradeGo FinTech's P/S has grown nicely over the last month thanks to a handy boost in the share price. We'd say the price-to-sales ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

We've concluded that TradeGo FinTech currently trades on a much higher than expected P/S since its forecast growth is lower than the wider industry. Right now we aren't comfortable with the high P/S as the predicted future revenues aren't likely to support such positive sentiment for long. This places shareholders' investments at significant risk and potential investors in danger of paying an excessive premium.

Before you take the next step, you should know about the 2 warning signs for TradeGo FinTech (1 is a bit concerning!) that we have uncovered.

If strong companies turning a profit tickle your fancy, then you'll want to check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).

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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.