China Kingstone Mining Holdings Limited's (HKG:1380) Shares Climb 60% But Its Business Is Yet to Catch Up

China Kingstone Mining Holdings Limited (HKG:1380) shareholders are no doubt pleased to see that the share price has bounced 60% in the last month, although it is still struggling to make up recently lost ground. Still, the 30-day jump doesn't change the fact that longer term shareholders have seen their stock decimated by the 84% share price drop in the last twelve months.

Even after such a large jump in price, there still wouldn't be many who think China Kingstone Mining Holdings' price-to-sales (or "P/S") ratio of 0.3x is worth a mention when the median P/S in Hong Kong's Metals and Mining industry is similar at about 0.5x. Although, it's not wise to simply ignore the P/S without explanation as investors may be disregarding a distinct opportunity or a costly mistake.

Check out our latest analysis for China Kingstone Mining Holdings

What Does China Kingstone Mining Holdings' P/S Mean For Shareholders?

China Kingstone Mining Holdings has been doing a good job lately as it's been growing revenue at a solid pace. It might be that many expect the respectable revenue performance to wane, which has kept the P/S from rising. If that doesn't eventuate, then existing shareholders probably aren't too pessimistic about the future direction of the share price.

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 China Kingstone Mining Holdings' earnings, revenue and cash flow.

How Is China Kingstone Mining Holdings' Revenue Growth Trending?

In order to justify its P/S ratio, China Kingstone Mining Holdings would need to produce growth that's similar to the industry.

Taking a look back first, we see that the company grew revenue by an impressive 21% last year. Revenue has also lifted 8.0% in aggregate from three years ago, mostly thanks to the last 12 months of growth. So we can start by confirming that the company has actually done a good job of growing revenue over that time.

Comparing that to the industry, which is predicted to deliver 14% growth in the next 12 months, the company's momentum is weaker, based on recent medium-term annualised revenue results.

In light of this, it's curious that China Kingstone Mining Holdings' P/S sits in line with the majority of other companies. It seems most investors are ignoring the fairly limited recent growth rates and are willing to pay up for exposure to the stock. They may be setting themselves up for future disappointment if the P/S falls to levels more in line with recent growth rates.

What We Can Learn From China Kingstone Mining Holdings' P/S?

China Kingstone Mining Holdings' stock has a lot of momentum behind it lately, which has brought its P/S level with the rest of the industry. 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.

Our examination of China Kingstone Mining Holdings revealed its poor three-year revenue trends aren't resulting in a lower P/S as per our expectations, given they look worse than current industry outlook. When we see weak revenue with slower than industry growth, we suspect the share price is at risk of declining, bringing the P/S back in line with expectations. Unless there is a significant improvement in the company's medium-term performance, it will be difficult to prevent the P/S ratio from declining to a more reasonable level.

We don't want to rain on the parade too much, but we did also find 4 warning signs for China Kingstone Mining Holdings (3 are potentially serious!) that you need to be mindful of.

If you're unsure about the strength of China Kingstone Mining 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.