CGN Mining Company Limited (HKG:1164) Looks Just Right With A 26% Price Jump

Despite an already strong run, CGN Mining Company Limited (HKG:1164) shares have been powering on, with a gain of 26% in the last thirty days. The annual gain comes to 103% following the latest surge, making investors sit up and take notice.

After such a large jump in price, given around half the companies in Hong Kong's Oil and Gas industry have price-to-sales ratios (or "P/S") below 0.8x, you may consider CGN Mining as a stock to avoid entirely with its 4.8x 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.

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See our latest analysis for CGN Mining

What Does CGN Mining's Recent Performance Look Like?

CGN Mining has been struggling lately as its revenue has declined faster than most other companies. It might be that many expect the dismal revenue performance to recover substantially, which has kept the P/S from collapsing. 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 CGN Mining.

Is There Enough Revenue Growth Forecasted For CGN Mining?

In order to justify its P/S ratio, CGN Mining would need to produce outstanding growth that's well in excess of the industry.

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 26%. Still, the latest three year period has seen an excellent 41% overall rise in revenue, in spite of its unsatisfying short-term performance. Although it's been a bumpy ride, it's still fair to say the revenue growth recently has been more than adequate for the company.

Turning to the outlook, the next year should generate growth of 39% as estimated by the eleven analysts watching the company. With the industry only predicted to deliver 1.5%, the company is positioned for a stronger revenue result.

With this in mind, it's not hard to understand why CGN Mining's P/S is high relative to its industry peers. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.

The Final Word

The strong share price surge has lead to CGN Mining's P/S soaring as well. It's argued the price-to-sales ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

As we suspected, our examination of CGN Mining's analyst forecasts revealed that its superior revenue outlook is contributing to its high P/S. Right now shareholders are comfortable with the P/S as they are quite confident future revenues aren't under threat. Unless the analysts have really missed the mark, these strong revenue forecasts should keep the share price buoyant.

Before you take the next step, you should know about the 2 warning signs for CGN Mining 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.