Hang Sang (Siu Po) International Holding Company Limited's (HKG:3626) Shares Climb 76% But Its Business Is Yet to Catch Up

Hang Sang (Siu Po) International Holding Company Limited (HKG:3626) shareholders have had their patience rewarded with a 76% share price jump in the last month. The last month tops off a massive increase of 126% in the last year.

After such a large jump in price, given close to half the companies operating in Hong Kong's Packaging industry have price-to-sales ratios (or "P/S") below 0.7x, you may consider Hang Sang (Siu Po) International Holding as a stock to potentially avoid with its 1.2x 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.

See our latest analysis for Hang Sang (Siu Po) International Holding

How Has Hang Sang (Siu Po) International Holding Performed Recently?

Hang Sang (Siu Po) International Holding certainly has been doing a great job lately as it's been growing its revenue at a really rapid pace. Perhaps the market is expecting future revenue performance to outperform the wider market, which has seemingly got people interested in the stock. If not, then existing shareholders might be a little nervous about the viability of the share price.

Although there are no analyst estimates available for Hang Sang (Siu Po) International Holding, 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 Hang Sang (Siu Po) International Holding?

There's an inherent assumption that a company should outperform the industry for P/S ratios like Hang Sang (Siu Po) International Holding's to be considered reasonable.

If we review the last year of revenue growth, the company posted a terrific increase of 57%. Revenue has also lifted 22% in aggregate from three years ago, mostly thanks to the last 12 months of growth. Therefore, it's fair to say the revenue growth recently has been respectable for the company.

Comparing that to the industry, which is predicted to deliver 24% 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 alarming that Hang Sang (Siu Po) International Holding's P/S sits above the majority of other companies. Apparently many investors in the company are way more bullish than recent times would indicate and aren't willing to let go of their stock at any price. There's a good chance existing shareholders are setting themselves up for future disappointment if the P/S falls to levels more in line with recent growth rates.

The Bottom Line On Hang Sang (Siu Po) International Holding's P/S

Hang Sang (Siu Po) International Holding's P/S is on the rise since its shares have risen strongly. 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 Hang Sang (Siu Po) International Holding revealed its poor three-year revenue trends aren't detracting from the P/S as much as we though, given they look worse than current industry expectations. Right now we aren't comfortable with the high P/S as this revenue performance isn't likely to support such positive sentiment for long. If recent medium-term revenue trends continue, it will place shareholders' investments at significant risk and potential investors in danger of paying an excessive premium.

Before you settle on your opinion, we've discovered 2 warning signs for Hang Sang (Siu Po) International Holding that you should be aware of.

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.