Chia Tai Enterprises International Limited (HKG:3839) Soars 28% But It's A Story Of Risk Vs Reward

Despite an already strong run, Chia Tai Enterprises International Limited (HKG:3839) shares have been powering on, with a gain of 28% in the last thirty days. This latest share price bounce rounds out a remarkable 852% gain over the last twelve months.

In spite of the firm bounce in price, there still wouldn't be many who think Chia Tai Enterprises International's price-to-sales (or "P/S") ratio of 0.5x is worth a mention when the median P/S in Hong Kong's Food industry is similar at about 0.6x. 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 Chia Tai Enterprises International

How Has Chia Tai Enterprises International Performed Recently?

Chia Tai Enterprises International certainly has been doing a great job lately as it's been growing its revenue at a really rapid pace. The P/S is probably moderate because investors think this strong revenue growth might not be enough to outperform the broader industry in the near future. Those who are bullish on Chia Tai Enterprises International will be hoping that this isn't the case, so that they can pick up the stock at a lower valuation.

Want the full picture on earnings, revenue and cash flow for the company? Then our free report on Chia Tai Enterprises International will help you shine a light on its historical performance.

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

Chia Tai Enterprises International'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.

If we review the last year of revenue growth, the company posted a terrific increase of 163%. The latest three year period has also seen an excellent 226% overall rise in revenue, aided by its short-term performance. So we can start by confirming that the company has done a great job of growing revenue over that time.

Comparing that recent medium-term revenue trajectory with the industry's one-year growth forecast of 3.9% shows it's noticeably more attractive.

In light of this, it's curious that Chia Tai Enterprises International's P/S sits in line with the majority of other companies. It may be that most investors are not convinced the company can maintain its recent growth rates.

The Final Word

Chia Tai Enterprises International appears to be back in favour with a solid price jump bringing its P/S back in line with other companies in the industry While the price-to-sales ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of revenue expectations.

We've established that Chia Tai Enterprises International currently trades on a lower than expected P/S since its recent three-year growth is higher than the wider industry forecast. 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. It appears some are indeed anticipating revenue instability, because the persistence of these recent medium-term conditions would normally provide a boost to the share price.

And what about other risks? Every company has them, and we've spotted 2 warning signs for Chia Tai Enterprises International (of which 1 is a bit concerning!) you should know about.

If you're unsure about the strength of Chia Tai Enterprises International's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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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.