Investors Interested In Star Plus Legend Holdings Limited's (HKG:6683) Revenues

When you see that almost half of the companies in the Food industry in Hong Kong have price-to-sales ratios (or "P/S") below 0.5x, Star Plus Legend Holdings Limited (HKG:6683) looks to be giving off strong sell signals with its 14.6x P/S ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly elevated P/S.

See our latest analysis for Star Plus Legend Holdings

How Star Plus Legend Holdings Has Been Performing

Star Plus Legend Holdings certainly has been doing a good job lately as it's been growing revenue more than most other companies. It seems the market expects this form will continue into the future, hence the elevated P/S ratio. However, if this isn't the case, investors might get caught out paying too much for the stock.

Want the full picture on analyst estimates for the company? Then our free report on Star Plus Legend Holdings will help you uncover what's on the horizon.

Is There Enough Revenue Growth Forecasted For Star Plus Legend Holdings?

There's an inherent assumption that a company should far outperform the industry for P/S ratios like Star Plus Legend Holdings' to be considered reasonable.

Taking a look back first, we see that the company grew revenue by an impressive 25% last year. Despite this strong recent growth, it's still struggling to catch up as its three-year revenue frustratingly shrank by 5.8% overall. Accordingly, shareholders would have felt downbeat about the medium-term rates of revenue growth.

Turning to the outlook, the next year should generate growth of 115% as estimated by the two analysts watching the company. That's shaping up to be materially higher than the 11% growth forecast for the broader industry.

With this information, we can see why Star Plus Legend Holdings is trading at such a high P/S compared to the industry. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.

What We Can Learn From Star Plus Legend Holdings' P/S?

It's argued the price-to-sales ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

We've established that Star Plus Legend Holdings maintains its high P/S on the strength of its forecasted revenue growth being higher than the the rest of the Food industry, as expected. Right now shareholders are comfortable with the P/S as they are quite confident future revenues aren't under threat. It's hard to see the share price falling strongly in the near future under these circumstances.

It is also worth noting that we have found 1 warning sign for Star Plus Legend Holdings that you need to take into consideration.

Of course, profitable companies with a history of great earnings growth are generally safer bets. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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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.