Investors Holding Back On China Reinsurance (Group) Corporation (HKG:1508)

There wouldn't be many who think China Reinsurance (Group) Corporation's (HKG:1508) price-to-sales (or "P/S") ratio of 0.3x is worth a mention when the median P/S for the Insurance industry in Hong Kong is similar at about 0.5x. While this might not raise any eyebrows, if the P/S ratio is not justified investors could be missing out on a potential opportunity or ignoring looming disappointment.

See our latest analysis for China Reinsurance (Group)

How China Reinsurance (Group) Has Been Performing

With revenue growth that's inferior to most other companies of late, China Reinsurance (Group) has been relatively sluggish. Perhaps the market is expecting future revenue performance to lift, which has kept the P/S from declining. However, if this isn't the case, investors might get caught out paying too much for the stock.

Keen to find out how analysts think China Reinsurance (Group)'s future stacks up against the industry? In that case, our free report is a great place to start.

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

China Reinsurance (Group)'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.

Taking a look back first, we see that the company grew revenue by an impressive 15% last year. Despite this strong recent growth, it's still struggling to catch up as its three-year revenue frustratingly shrank by 32% overall. So unfortunately, we have to acknowledge that the company has not done a great job of growing revenues over that time.

Turning to the outlook, the next year should demonstrate the company's robustness, generating growth of 26% as estimated by the three analysts watching the company. Meanwhile, the broader industry is forecast to contract by 4.3%, which would indicate the company is doing very well.

In light of this, it's peculiar that China Reinsurance (Group)'s P/S sits in-line with the majority of other companies. Apparently some shareholders are skeptical of the contrarian forecasts and have been accepting lower selling prices.

The Final Word

Typically, we'd caution against reading too much into price-to-sales ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

Our examination of China Reinsurance (Group)'s analyst forecasts revealed that its superior revenue outlook against a shaky industry isn't resulting in the company trading at a higher P/S, as per our expectations. We assume that investors are attributing some risk to the company's future revenues, keeping it from trading at a higher P/S. The market could be pricing in the event that tough industry conditions will impact future revenues. However, if you agree with the analysts' forecasts, you may be able to pick up the stock at an attractive price.

It's always necessary to consider the ever-present spectre of investment risk. We've identified 3 warning signs with China Reinsurance (Group) (at least 2 which can't be ignored), and understanding these should be part of your investment process.

If you're unsure about the strength of China Reinsurance (Group)'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.