Chia Tai Enterprises International Limited (HKG:3839) Stock Rockets 30% But Many Are Still Ignoring The Company

Chia Tai Enterprises International Limited (HKG:3839) shareholders would be excited to see that the share price has had a great month, posting a 30% gain and recovering from prior weakness. Unfortunately, the gains of the last month did little to right the losses of the last year with the stock still down 33% over that time.

Even after such a large jump in price, you could still be forgiven for feeling indifferent about Chia Tai Enterprises International's P/S ratio of 0.1x, since the median price-to-sales (or "P/S") ratio for the Food industry in Hong Kong is also close to 0.5x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/S.

See our latest analysis for Chia Tai Enterprises International

What Does Chia Tai Enterprises International's Recent Performance Look Like?

Revenue has risen firmly for Chia Tai Enterprises International recently, which is pleasing to see. It might be that many expect the respectable revenue performance to wane, which has kept the P/S from rising. If you like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's not quite in favour.

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 Chia Tai Enterprises International's earnings, revenue and cash flow.

Is There Some Revenue Growth Forecasted For Chia Tai Enterprises International?

The only time you'd be comfortable seeing a P/S like Chia Tai Enterprises International's is when the company's growth is tracking the industry closely.

If we review the last year of revenue growth, the company posted a terrific increase of 24%. The strong recent performance means it was also able to grow revenue by 81% in total over the last three years. Accordingly, shareholders would have definitely welcomed those medium-term rates of revenue growth.

Comparing that recent medium-term revenue trajectory with the industry's one-year growth forecast of 6.8% 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. Apparently some shareholders believe the recent performance is at its limits and have been accepting lower selling prices.

What Does Chia Tai Enterprises International's P/S Mean For Investors?

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 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.

To our surprise, Chia Tai Enterprises International revealed its three-year revenue trends aren't contributing to its P/S as much as we would have predicted, given they look better than current industry expectations. 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. At least the risk of a price drop looks to be subdued if recent medium-term revenue trends continue, but investors seem to think future revenue could see some volatility.

You should always think about risks. Case in point, we've spotted 3 warning signs for Chia Tai Enterprises International you should be aware of, and 1 of them is significant.

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.