Market Might Still Lack Some Conviction On Chinese People Holdings Company Limited (HKG:681) Even After 32% Share Price Boost

Despite an already strong run, Chinese People Holdings Company Limited (HKG:681) shares have been powering on, with a gain of 32% in the last thirty days. The last 30 days bring the annual gain to a very sharp 38%.

In spite of the firm bounce in price, considering around half the companies operating in Hong Kong's Oil and Gas industry have price-to-sales ratios (or "P/S") above 0.8x, you may still consider Chinese People Holdings as an solid investment opportunity with its 0.1x P/S ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/S.

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View our latest analysis for Chinese People Holdings

How Has Chinese People Holdings Performed Recently?

The recent revenue growth at Chinese People Holdings would have to be considered satisfactory if not spectacular. It might be that many expect the respectable revenue performance to degrade, which has repressed the P/S. Those who are bullish on Chinese People Holdings will be hoping that this isn't the case, so that they can pick up the stock at a lower valuation.

Although there are no analyst estimates available for Chinese People Holdings, take a look at this free data-rich visualisation to see how the company stacks up on earnings, revenue and cash flow.

Do Revenue Forecasts Match The Low P/S Ratio?

The only time you'd be truly comfortable seeing a P/S as low as Chinese People Holdings' is when the company's growth is on track to lag the industry.

Taking a look back first, we see that the company managed to grow revenues by a handy 4.8% last year. However, this wasn't enough as the latest three year period has seen an unpleasant 3.5% overall drop in revenue. Accordingly, shareholders would have felt downbeat about the medium-term rates of revenue growth.

It turns out the industry is also predicted to shrink 2.4% in the next 12 months, mirroring the company's downward momentum based on recent medium-term annualised revenue results.

In light of this, the fact Chinese People Holdings' P/S sits below the majority of other companies is unanticipated but certainly not shocking. In general, shrinking revenues are unlikely to lead to a stable P/S long-term, which could set up shareholders for future disappointment regardless. There is still potential for the P/S to fall to even lower levels if the company doesn't improve its top-line growth, which would be difficult to do with the current industry outlook.

What Does Chinese People Holdings' P/S Mean For Investors?

Chinese People Holdings' stock price has surged recently, but its but its P/S still remains modest. 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.

We've established that Chinese People Holdings currently trades on a lower than expected P/S since its recent three-year revenue growth is no worse than the forecasts for a struggling industry. When we see a revenue growth decline that is on par with its peers, we can only assume potential risks are what might be causing the P/S ratio to be lower than average. Perhaps there is some hesitation about the company's ability to stay its recent medium-term course and resist further pain to its business from the broader industry turmoil. At least the risk of a price drop looks to be subdued, but investors seem to think future revenue could see some volatility.

Having said that, be aware Chinese People Holdings is showing 4 warning signs in our investment analysis, and 1 of those is a bit concerning.

If these risks are making you reconsider your opinion on Chinese People Holdings, 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.