Feishang Anthracite Resources Limited (HKG:1738) Stock Rockets 112% As Investors Are Less Pessimistic Than Expected

Feishang Anthracite Resources Limited (HKG:1738) shareholders have had their patience rewarded with a 112% share price jump in the last month. The last 30 days bring the annual gain to a very sharp 58%.

In spite of the firm bounce in price, it's still not a stretch to say that Feishang Anthracite Resources' price-to-sales (or "P/S") ratio of 0.9x right now seems quite "middle-of-the-road" compared to the Oil and Gas industry in Hong Kong, where the median P/S ratio is around 0.8x. While this might not raise any eyebrows, if the P/S ratio is not justified investors could be missing out on a potential opportunity or ignoring looming disappointment.

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See our latest analysis for Feishang Anthracite Resources

How Has Feishang Anthracite Resources Performed Recently?

For instance, Feishang Anthracite Resources' receding revenue in recent times would have to be some food for thought. One possibility is that the P/S is moderate because investors think the company might still do enough to be in line with the broader industry in the near future. 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.

We don't have analyst forecasts, but you can see how recent trends are setting up the company for the future by checking out our free report on Feishang Anthracite Resources' earnings, revenue and cash flow.

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

In order to justify its P/S ratio, Feishang Anthracite Resources would need to produce growth that's similar to 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 69%. This means it has also seen a slide in revenue over the longer-term as revenue is down 72% in total over the last three years. Accordingly, shareholders would have felt downbeat about the medium-term rates of revenue growth.

Comparing that to the industry, which is predicted to shrink 2.4% in the next 12 months, the company's downward momentum is still inferior based on recent medium-term annualised revenue results.

In light of this, it's somewhat peculiar that Feishang Anthracite Resources' P/S sits in line with the majority of other companies. In general, when revenue shrink rapidly the P/S often shrinks too, which could set up shareholders for future disappointment. There's potential for the P/S to fall to lower levels if the company doesn't improve its top-line growth, which would be difficult to do with the current industry outlook.

The Key Takeaway

Feishang Anthracite Resources appears to be back in favour with a solid price jump bringing its P/S back in line with other companies in the industry 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.

We've established that Feishang Anthracite Resources currently trades on a higher than expected P/S since its recent three-year revenues are even worse than the forecasts for a struggling industry. Right now we are uncomfortable with the P/S as this revenue performance isn't likely to support a more positive sentiment for long. In addition, we would be concerned whether the company can even maintain its medium-term level of performance under these tough industry conditions. This would place shareholders' investments at risk and potential investors in danger of paying an unnecessary premium.

You should always think about risks. Case in point, we've spotted 5 warning signs for Feishang Anthracite Resources you should be aware of, and 3 of them can't be ignored.

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.