Powerlong Real Estate Holdings Limited (HKG:1238) Surges 102% Yet Its Low P/S Is No Reason For Excitement

Powerlong Real Estate Holdings Limited (HKG:1238) shareholders would be excited to see that the share price has had a great month, posting a 102% gain and recovering from prior weakness. Taking a wider view, although not as strong as the last month, the full year gain of 15% is also fairly reasonable.

Although its price has surged higher, Powerlong Real Estate Holdings may still be sending buy signals at present with its price-to-sales (or "P/S") ratio of 0.2x, considering almost half of all companies in the Real Estate industry in Hong Kong have P/S ratios greater than 0.7x and even P/S higher than 3x aren't out of the ordinary. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's limited.

View our latest analysis for Powerlong Real Estate Holdings

What Does Powerlong Real Estate Holdings' P/S Mean For Shareholders?

Powerlong Real Estate Holdings hasn't been tracking well recently as its declining revenue compares poorly to other companies, which have seen some growth in their revenues on average. Perhaps the P/S remains low as investors think the prospects of strong revenue growth aren't on the horizon. So while you could say the stock is cheap, investors will be looking for improvement before they see it as good value.

Want the full picture on analyst estimates for the company? Then our free report on Powerlong Real Estate Holdings will help you uncover what's on the horizon.

Is There Any Revenue Growth Forecasted For Powerlong Real Estate Holdings?

There's an inherent assumption that a company should underperform the industry for P/S ratios like Powerlong Real Estate Holdings' to be considered reasonable.

Taking a look back first, the company's revenue growth last year wasn't something to get excited about as it posted a disappointing decline of 2.0%. The last three years don't look nice either as the company has shrunk revenue by 33% in aggregate. So unfortunately, we have to acknowledge that the company has not done a great job of growing revenue over that time.

Looking ahead now, revenue is anticipated to slump, contracting by 21% during the coming year according to the one analyst following the company. That's not great when the rest of the industry is expected to grow by 4.9%.

In light of this, it's understandable that Powerlong Real Estate Holdings' P/S would sit below the majority of other companies. Nonetheless, there's no guarantee the P/S has reached a floor yet with revenue going in reverse. Even just maintaining these prices could be difficult to achieve as the weak outlook is weighing down the shares.

The Final Word

Despite Powerlong Real Estate Holdings' share price climbing recently, its P/S still lags most other companies. Using the price-to-sales ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

With revenue forecasts that are inferior to the rest of the industry, it's no surprise that Powerlong Real Estate Holdings' P/S is on the lower end of the spectrum. As other companies in the industry are forecasting revenue growth, Powerlong Real Estate Holdings' poor outlook justifies its low P/S ratio. Unless these conditions improve, they will continue to form a barrier for the share price around these levels.

Before you take the next step, you should know about the 4 warning signs for Powerlong Real Estate Holdings (3 are a bit unpleasant!) that we have uncovered.

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.

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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.