Petro-king Oilfield Services Limited (HKG:2178) Might Not Be As Mispriced As It Looks After Plunging 25%

Petro-king Oilfield Services Limited (HKG:2178) shareholders won't be pleased to see that the share price has had a very rough month, dropping 25% and undoing the prior period's positive performance. The recent drop has obliterated the annual return, with the share price now down 5.8% over that longer period.

In spite of the heavy fall in price, you could still be forgiven for feeling indifferent about Petro-king Oilfield Services' P/S ratio of 0.3x, since the median price-to-sales (or "P/S") ratio for the Energy Services industry in Hong Kong is about the same. 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.

Check out our latest analysis for Petro-king Oilfield Services

How Petro-king Oilfield Services Has Been Performing

Revenue has risen firmly for Petro-king Oilfield Services recently, which is pleasing to see. It might be that many expect the respectable revenue performance to wane, which has kept the P/S from rising. Those who are bullish on Petro-king Oilfield Services will be hoping that this isn't the case, so that they can pick up the stock at a lower valuation.

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 Petro-king Oilfield Services' earnings, revenue and cash flow.

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

There's an inherent assumption that a company should be matching the industry for P/S ratios like Petro-king Oilfield Services' to be considered reasonable.

Taking a look back first, we see that the company managed to grow revenues by a handy 8.4% last year. This was backed up an excellent period prior to see revenue up by 68% in total over the last three years. Accordingly, shareholders would have definitely welcomed those medium-term rates of revenue growth.

Comparing that recent medium-term revenue trajectory with the industry's one-year growth forecast of 12% shows it's noticeably more attractive.

With this information, we find it interesting that Petro-king Oilfield Services is trading at a fairly similar P/S compared to the industry. Apparently some shareholders believe the recent performance is at its limits and have been accepting lower selling prices.

What Does Petro-king Oilfield Services' P/S Mean For Investors?

Petro-king Oilfield Services' plummeting stock price has brought its P/S back to a similar region as the rest of the industry. 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.

We didn't quite envision Petro-king Oilfield Services' P/S sitting in line with the wider industry, considering the revenue growth over the last three-year is higher than the current industry outlook. When we see strong revenue with faster-than-industry growth, we can only assume potential risks are what might be placing pressure on the P/S ratio. At least the risk of a price drop looks to be subdued if recent medium-term revenue trends continue, but investors seem to think future revenue could see some volatility.

Don't forget that there may be other risks. For instance, we've identified 3 warning signs for Petro-king Oilfield Services (2 make us uncomfortable) you should be aware of.

If companies with solid past earnings growth is up your alley, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

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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.