Feishang Anthracite Resources Limited's (HKG:1738) 56% Share Price Surge Not Quite Adding Up

The Feishang Anthracite Resources Limited (HKG:1738) share price has done very well over the last month, posting an excellent gain of 56%. Not all shareholders will be feeling jubilant, since the share price is still down a very disappointing 33% in the last twelve months.

Although its price has surged higher, you could still be forgiven for feeling indifferent about Feishang Anthracite Resources' P/S ratio of 0.4x, since the median price-to-sales (or "P/S") ratio for the Oil and Gas industry in Hong Kong is also close to 0.7x. 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.

See our latest analysis for Feishang Anthracite Resources

How Has Feishang Anthracite Resources Performed Recently?

For example, consider that Feishang Anthracite Resources' financial performance has been poor lately as its revenue has been in decline. It might be that many expect the company to put the disappointing revenue performance behind them over the coming period, which has kept the P/S from falling. 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.

Is There Some Revenue Growth Forecasted For Feishang Anthracite Resources?

In order to justify its P/S ratio, Feishang Anthracite Resources would need to produce growth that's similar to the industry.

Retrospectively, the last year delivered a frustrating 67% decrease to the company's top line. As a result, revenue from three years ago have also fallen 51% overall. Accordingly, shareholders would have felt downbeat about the medium-term rates of revenue growth.

Weighing that medium-term revenue trajectory against the broader industry's one-year forecast for expansion of 1.8% shows it's an unpleasant look.

In light of this, it's somewhat alarming that Feishang Anthracite Resources' P/S sits in line with the majority of other companies. It seems most investors are ignoring the recent poor growth rate and are hoping for a turnaround in the company's business prospects. Only the boldest would assume these prices are sustainable as a continuation of recent revenue trends is likely to weigh on the share price eventually.

The Final Word

Feishang Anthracite Resources' stock has a lot of momentum behind it lately, which has brought its P/S level with the rest of the industry. While the price-to-sales ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of revenue expectations.

We find it unexpected that Feishang Anthracite Resources trades at a P/S ratio that is comparable to the rest of the industry, despite experiencing declining revenues during the medium-term, while the industry as a whole is expected 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. Unless the the circumstances surrounding the recent medium-term improve, it wouldn't be wrong to expect a a difficult period ahead for the company's shareholders.

Having said that, be aware Feishang Anthracite Resources is showing 4 warning signs in our investment analysis, and 3 of those are significant.

If these risks are making you reconsider your opinion on Feishang Anthracite Resources, 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.