Further Upside For Brightstar Technology Group Co., Ltd. (HKG:8446) Shares Could Introduce Price Risks After 59% Bounce

Brightstar Technology Group Co., Ltd. (HKG:8446) shareholders would be excited to see that the share price has had a great month, posting a 59% gain and recovering from prior weakness. But the last month did very little to improve the 90% share price decline over the last year.

Even after such a large jump in price, it's still not a stretch to say that Brightstar Technology Group's price-to-sales (or "P/S") ratio of 1.8x right now seems quite "middle-of-the-road" compared to the Entertainment industry in Hong Kong, where the median P/S ratio is around 1.4x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/S.

View our latest analysis for Brightstar Technology Group

How Has Brightstar Technology Group Performed Recently?

With revenue growth that's exceedingly strong of late, Brightstar Technology Group has been doing very well. The P/S is probably moderate because investors think this strong revenue growth might not be enough to outperform the broader industry in the near future. If that doesn't eventuate, then existing shareholders have reason to be feeling optimistic about the future direction of the share price.

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

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

The only time you'd be comfortable seeing a P/S like Brightstar Technology Group's is when the company's growth is tracking the industry closely.

Retrospectively, the last year delivered an exceptional 46% gain to the company's top line. This great performance means it was also able to deliver immense revenue growth over the last three years. Therefore, it's fair to say the revenue growth recently has been superb for the company.

Comparing that to the industry, which is only predicted to deliver 41% growth in the next 12 months, the company's momentum is stronger based on recent medium-term annualised revenue results.

In light of this, it's curious that Brightstar Technology Group's P/S sits in line with the majority of other companies. It may be that most investors are not convinced the company can maintain its recent growth rates.

The Bottom Line On Brightstar Technology Group's P/S

Its shares have lifted substantially and now Brightstar Technology Group's P/S is back within range of the industry median. We'd say the price-to-sales ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

To our surprise, Brightstar Technology Group revealed its three-year revenue trends aren't contributing to its P/S as much as we would have predicted, given they look better than current industry expectations. There could be some unobserved threats to revenue preventing the P/S ratio from matching this positive performance. At least the risk of a price drop looks to be subdued if recent medium-term revenue trends continue, but investors seem to think future revenue could see some volatility.

Before you take the next step, you should know about the 4 warning signs for Brightstar Technology Group (1 shouldn't be ignored!) that we have uncovered.

If these risks are making you reconsider your opinion on Brightstar Technology Group, explore our interactive list of high quality stocks to get an idea of what else is out there.

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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.