EPI (Holdings) Limited's (HKG:689) 28% Cheaper Price Remains In Tune With Revenues

EPI (Holdings) Limited (HKG:689) shareholders won't be pleased to see that the share price has had a very rough month, dropping 28% and undoing the prior period's positive performance. Instead of being rewarded, shareholders who have already held through the last twelve months are now sitting on a 25% share price drop.

Although its price has dipped substantially, given close to half the companies operating in Hong Kong's Oil and Gas industry have price-to-sales ratios (or "P/S") below 0.8x, you may still consider EPI (Holdings) as a stock to potentially avoid with its 1.4x P/S ratio. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's as high as it is.

Check out our latest analysis for EPI (Holdings)

How EPI (Holdings) Has Been Performing

EPI (Holdings) has been doing a decent job lately as it's been growing revenue at a reasonable pace. It might be that many expect the reasonable revenue performance to beat most other companies over the coming period, which has increased investors’ willingness to pay up for the stock. If not, then existing shareholders may be a little nervous about the viability of the share price.

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

How Is EPI (Holdings)'s Revenue Growth Trending?

There's an inherent assumption that a company should outperform the industry for P/S ratios like EPI (Holdings)'s to be considered reasonable.

If we review the last year of revenue growth, the company posted a worthy increase of 6.3%. This was backed up an excellent period prior to see revenue up by 101% in total over the last three years. So we can start by confirming that the company has done a great job of growing revenues over that time.

This is in contrast to the rest of the industry, which is expected to grow by 5.2% over the next year, materially lower than the company's recent medium-term annualised growth rates.

With this in consideration, it's not hard to understand why EPI (Holdings)'s P/S is high relative to its industry peers. Presumably shareholders aren't keen to offload something they believe will continue to outmanoeuvre the wider industry.

What We Can Learn From EPI (Holdings)'s P/S?

Despite the recent share price weakness, EPI (Holdings)'s P/S remains higher than most other companies in the industry. Generally, our preference is to limit the use of the price-to-sales ratio to establishing what the market thinks about the overall health of a company.

It's no surprise that EPI (Holdings) can support its high P/S given the strong revenue growth its experienced over the last three-year is superior to the current industry outlook. At this stage investors feel the potential continued revenue growth in the future is great enough to warrant an inflated P/S. Barring any significant changes to the company's ability to make money, the share price should continue to be propped up.

Before you take the next step, you should know about the 2 warning signs for EPI (Holdings) that we have uncovered.

It's important to make sure you look for a great company, not just the first idea you come across. So if growing profitability aligns with your idea of a great company, take a peek at this free list of interesting companies with strong recent earnings growth (and a low P/E).

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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.