Market Participants Recognise Summi (Group) Holdings Limited's (HKG:756) Revenues Pushing Shares 32% Higher

Summi (Group) Holdings Limited (HKG:756) shareholders are no doubt pleased to see that the share price has bounced 32% in the last month, although it is still struggling to make up recently lost ground. Not all shareholders will be feeling jubilant, since the share price is still down a very disappointing 43% in the last twelve months.

After such a large jump in price, when almost half of the companies in Hong Kong's Food industry have price-to-sales ratios (or "P/S") below 0.7x, you may consider Summi (Group) Holdings as a stock probably not worth researching with its 2.4x P/S ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the elevated P/S.

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See our latest analysis for Summi (Group) Holdings

What Does Summi (Group) Holdings' P/S Mean For Shareholders?

Summi (Group) Holdings has been doing a decent job lately as it's been growing revenue at a reasonable pace. One possibility is that the P/S ratio is high because investors think this good revenue growth will be enough to outperform the broader industry in the near future. However, if this isn't the case, investors might get caught out paying too much for the stock.

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

Is There Enough Revenue Growth Forecasted For Summi (Group) Holdings?

The only time you'd be truly comfortable seeing a P/S as high as Summi (Group) Holdings' is when the company's growth is on track to outshine the industry.

Retrospectively, the last year delivered a decent 7.4% gain to the company's revenues. This was backed up an excellent period prior to see revenue up by 187% in total over the last three years. Therefore, it's fair to say the revenue growth recently has been superb for the company.

When compared to the industry's one-year growth forecast of 4.7%, the most recent medium-term revenue trajectory is noticeably more alluring

With this in consideration, it's not hard to understand why Summi (Group) Holdings' 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 Summi (Group) Holdings' P/S?

Summi (Group) Holdings' P/S is on the rise since its shares have risen strongly. 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 Summi (Group) 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. Unless the recent medium-term conditions change, they will continue to provide strong support to the share price.

Before you take the next step, you should know about the 4 warning signs for Summi (Group) Holdings (2 are potentially serious!) that we have uncovered.

If you're unsure about the strength of Summi (Group) Holdings' 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.