Revenues Not Telling The Story For Cathay Group Holdings Inc. (HKG:1981) After Shares Rise 29%

Cathay Group Holdings Inc. (HKG:1981) shares have had a really impressive month, gaining 29% after a shaky period beforehand. The last month tops off a massive increase of 105% in the last year.

After such a large jump in price, given close to half the companies operating in Hong Kong's Entertainment industry have price-to-sales ratios (or "P/S") below 2.6x, you may consider Cathay Group Holdings as a stock to potentially avoid with its 3.4x P/S ratio. However, the P/S might be high for a reason and it requires further investigation to determine if it's justified.

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See our latest analysis for Cathay Group Holdings

What Does Cathay Group Holdings' Recent Performance Look Like?

Cathay Group Holdings could be doing better as it's been growing revenue less than most other companies lately. One possibility is that the P/S ratio is high because investors think this lacklustre revenue performance will improve markedly. However, if this isn't the case, investors might get caught out paying too much for the stock.

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Cathay Group Holdings.

Do Revenue Forecasts Match The High P/S Ratio?

Cathay Group Holdings' P/S ratio would be typical for a company that's expected to deliver solid growth, and importantly, perform better than the industry.

Retrospectively, the last year delivered a decent 3.1% gain to the company's revenues. This was backed up an excellent period prior to see revenue up by 35% in total over the last three years. Therefore, it's fair to say the revenue growth recently has been superb for the company.

Looking ahead now, revenue is anticipated to climb by 12% during the coming year according to the only analyst following the company. That's shaping up to be similar to the 12% growth forecast for the broader industry.

With this in consideration, we find it intriguing that Cathay Group Holdings' P/S is higher than its industry peers. Apparently many investors in the company are more bullish than analysts indicate and aren't willing to let go of their stock right now. Although, additional gains will be difficult to achieve as this level of revenue growth is likely to weigh down the share price eventually.

What Does Cathay Group Holdings' P/S Mean For Investors?

Cathay 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.

Given Cathay Group Holdings' future revenue forecasts are in line with the wider industry, the fact that it trades at an elevated P/S is somewhat surprising. The fact that the revenue figures aren't setting the world alight has us doubtful that the company's elevated P/S can be sustainable for the long term. Unless the company can jump ahead of the rest of the industry in the short-term, it'll be a challenge to maintain the share price at current levels.

Don't forget that there may be other risks. For instance, we've identified 2 warning signs for Cathay Group Holdings (1 is a bit unpleasant) you should be aware of.

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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.