Grand Ocean Advanced Resources Company Limited (HKG:65) Looks Just Right With A 28% Price Jump

Explore Grand Ocean Advanced Resources's Fair Values from the Community and select yours

Grand Ocean Advanced Resources Company Limited (HKG:65) shares have had a really impressive month, gaining 28% after a shaky period beforehand. But the last month did very little to improve the 51% share price decline over the last year.

In spite of the firm bounce in price, there still wouldn't be many who think Grand Ocean Advanced Resources' price-to-sales (or "P/S") ratio of 0.6x is worth a mention when the median P/S in Hong Kong's Oil and Gas industry is similar at about 0.8x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/S.

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Check out our latest analysis for Grand Ocean Advanced Resources

How Grand Ocean Advanced Resources Has Been Performing

For example, consider that Grand Ocean Advanced Resources' financial performance has been poor lately as its revenue has been in decline. Perhaps investors believe the recent revenue performance is enough to keep in line with the industry, which is keeping the P/S from dropping off. If not, then existing shareholders may be a little nervous about the viability 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 Grand Ocean Advanced Resources' earnings, revenue and cash flow.

Is There Some Revenue Growth Forecasted For Grand Ocean Advanced Resources?

There's an inherent assumption that a company should be matching the industry for P/S ratios like Grand Ocean Advanced Resources' to be considered reasonable.

In reviewing the last year of financials, we were disheartened to see the company's revenues fell to the tune of 3.7%. As a result, revenue from three years ago have also fallen 1.1% overall. So unfortunately, we have to acknowledge that the company has not done a great job of growing revenue over that time.

It's interesting to note that the rest of the industry is similarly expected to decline by 2.0% over the next year, which is just as bad as the company's recent medium-term revenue decline.

With this in mind, it's no surprise that Grand Ocean Advanced Resources' P/S is similar to its industry peers. Nonetheless, there's no guarantee the P/S has found a floor yet with recent revenue going backwards, despite the industry heading down in unison. There is 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 Bottom Line On Grand Ocean Advanced Resources' P/S

Grand Ocean Advanced 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 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 expected, our analysis of Grand Ocean Advanced Resources confirms that the company's contraction in revenue over the past three-year years is a major contributor to its industry-matching P/S, given the industry is set to decline in a similar fashion. At this stage investors feel the company's revenue potential is similar enough to its peers that it doesn't warrant a higher or lower P/S. However, we're slightly cautious about the company's ability to stay its recent medium-term course and resist further pain to its business from the broader industry turmoil. If the company's performance remains relatively stable, it's likely that the current share price will continue to find support.

It's always necessary to consider the ever-present spectre of investment risk. We've identified 2 warning signs with Grand Ocean Advanced Resources (at least 1 which is significant), and understanding them should be part of your investment process.

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.