What Shengli Oil & Gas Pipe Holdings Limited's (HKG:1080) 31% Share Price Gain Is Not Telling You

The Shengli Oil & Gas Pipe Holdings Limited (HKG:1080) share price has done very well over the last month, posting an excellent gain of 31%. The bad news is that even after the stocks recovery in the last 30 days, shareholders are still underwater by about 5.0% over the last year.

Although its price has surged higher, you could still be forgiven for feeling indifferent about Shengli Oil & Gas Pipe Holdings' P/S ratio of 0.2x, since the median price-to-sales (or "P/S") ratio for the Energy Services industry in Hong Kong is also close to 0.4x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/S.

View our latest analysis for Shengli Oil & Gas Pipe Holdings

How Has Shengli Oil & Gas Pipe Holdings Performed Recently?

As an illustration, revenue has deteriorated at Shengli Oil & Gas Pipe Holdings over the last year, which is not ideal at all. Perhaps investors believe the recent revenue performance is enough to keep in line with the industry, which is keeping the P/S from dropping off. If you like the company, you'd at least be hoping this is the case so that you could potentially pick up some stock while it's not quite in favour.

Want the full picture on earnings, revenue and cash flow for the company? Then our free report on Shengli Oil & Gas Pipe Holdings will help you shine a light on its historical performance.

How Is Shengli Oil & Gas Pipe Holdings' Revenue Growth Trending?

Shengli Oil & Gas Pipe Holdings' 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.

Retrospectively, the last year delivered a frustrating 35% decrease to the company's top line. The last three years don't look nice either as the company has shrunk revenue by 47% in aggregate. Therefore, it's fair to say the revenue growth recently has been undesirable for the company.

In contrast to the company, the rest of the industry is expected to grow by 13% over the next year, which really puts the company's recent medium-term revenue decline into perspective.

With this information, we find it concerning that Shengli Oil & Gas Pipe Holdings is trading at a fairly similar P/S compared to the industry. It seems most investors are ignoring the recent poor growth rate and are hoping for a turnaround in the company's business prospects. There's a good chance existing shareholders are setting themselves up for future disappointment if the P/S falls to levels more in line with the recent negative growth rates.

What We Can Learn From Shengli Oil & Gas Pipe Holdings' P/S?

Its shares have lifted substantially and now Shengli Oil & Gas Pipe Holdings' P/S is back within range of the industry median. 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.

The fact that Shengli Oil & Gas Pipe Holdings currently trades at a P/S on par with the rest of the industry is surprising to us since its recent revenues have been in decline over the medium-term, all while the industry is set to grow. When we see revenue heading backwards in the context of growing industry forecasts, it'd make sense to expect a possible share price decline on the horizon, sending the moderate P/S lower. If recent medium-term revenue trends continue, it will place shareholders' investments at risk and potential investors in danger of paying an unnecessary premium.

You always need to take note of risks, for example - Shengli Oil & Gas Pipe Holdings has 1 warning sign we think you should be aware of.

If you're unsure about the strength of Shengli Oil & Gas Pipe Holdings' business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.