Investors Give JX Energy Ltd. (HKG:3395) Shares A 25% Hiding

JX Energy Ltd. (HKG:3395) shareholders that were waiting for something to happen have been dealt a blow with a 25% share price drop in the last month. The drop over the last 30 days has capped off a tough year for shareholders, with the share price down 34% in that time.

Although its price has dipped substantially, there still wouldn't be many who think JX Energy's price-to-sales (or "P/S") ratio of 1x is worth a mention when the median P/S in Hong Kong's Oil and Gas industry is similar at about 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.

View our latest analysis for JX Energy

How Has JX Energy Performed Recently?

Revenue has risen firmly for JX Energy recently, which is pleasing to see. Perhaps the market is expecting future revenue performance to only keep up with the broader industry, which has keeping the P/S in line with expectations. If that doesn't eventuate, then existing shareholders probably aren't too pessimistic about the future direction of the share price.

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 JX Energy's earnings, revenue and cash flow.

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

JX Energy's 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.

Taking a look back first, we see that the company grew revenue by an impressive 19% last year. Pleasingly, revenue has also lifted 84% in aggregate from three years ago, thanks to the last 12 months of growth. Accordingly, shareholders would have definitely welcomed those medium-term rates of revenue growth.

In contrast to the company, the rest of the industry is expected to decline by 4.5% over the next year, which puts the company's recent medium-term positive growth rates in a good light for now.

In light of this, it's peculiar that JX Energy's P/S sits in line with the majority of other companies. It looks like most investors are not convinced the company can maintain its recent positive growth rate in the face of a shrinking broader industry.

The Final Word

Following JX Energy's share price tumble, its P/S is just clinging on to the industry median P/S. 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.

As mentioned previously, JX Energy currently trades on a P/S on par with the wider industry, but this is lower than expected considering its recent three-year revenue growth is beating forecasts for a struggling industry. There could be some unobserved threats to revenue preventing the P/S ratio from outpacing the industry much like its revenue performance. Without the guidance of analysts, perhaps shareholders are feeling uncertain over whether the revenue performance can continue amidst a declining industry outlook. It appears some are indeed anticipating revenue instability, because this relative performance should normally provide a boost to the share price.

You always need to take note of risks, for example - JX Energy has 2 warning signs we think 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.