Guangdong - Hong Kong Greater Bay Area Holdings Limited's (HKG:1396) 33% Share Price Surge Not Quite Adding Up

Guangdong - Hong Kong Greater Bay Area Holdings Limited (HKG:1396) shares have continued their recent momentum with a 33% gain in the last month alone. The last 30 days were the cherry on top of the stock's 975% gain in the last year, which is nothing short of spectacular.

Although its price has surged higher, it's still not a stretch to say that Guangdong - Hong Kong Greater Bay Area Holdings' price-to-sales (or "P/S") ratio of 0.3x right now seems quite "middle-of-the-road" compared to the Real Estate industry in Hong Kong, where the median P/S ratio is around 0.6x. 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.

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See our latest analysis for Guangdong - Hong Kong Greater Bay Area Holdings

How Has Guangdong - Hong Kong Greater Bay Area Holdings Performed Recently?

As an illustration, revenue has deteriorated at Guangdong - Hong Kong Greater Bay Area Holdings over the last year, which is not ideal at all. It might be that many expect the company to put the disappointing revenue performance behind them over the coming period, which has kept the P/S from falling. If you like the company, you'd at least be hoping this is the case so that you could potentially pick up some stock while it's not quite in favour.

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 Guangdong - Hong Kong Greater Bay Area Holdings' earnings, revenue and cash flow.

Is There Some Revenue Growth Forecasted For Guangdong - Hong Kong Greater Bay Area Holdings?

Guangdong - Hong Kong Greater Bay Area Holdings' P/S ratio would be typical for a company that's only expected to deliver moderate growth, and importantly, perform in line with the industry.

In reviewing the last year of financials, we were disheartened to see the company's revenues fell to the tune of 26%. The last three years don't look nice either as the company has shrunk revenue by 53% in aggregate. So unfortunately, we have to acknowledge that the company has not done a great job of growing revenue over that time.

Comparing that to the industry, which is predicted to deliver 7.0% growth in the next 12 months, the company's downward momentum based on recent medium-term revenue results is a sobering picture.

With this in mind, we find it worrying that Guangdong - Hong Kong Greater Bay Area Holdings' P/S exceeds that of its industry peers. It seems most investors are ignoring the recent poor growth rate and are hoping for a turnaround in the company's business prospects. Only the boldest would assume these prices are sustainable as a continuation of recent revenue trends is likely to weigh on the share price eventually.

What Does Guangdong - Hong Kong Greater Bay Area Holdings' P/S Mean For Investors?

Guangdong - Hong Kong Greater Bay Area Holdings appears to be back in favour with a solid price jump bringing its P/S back in line with other companies in the industry It's argued the price-to-sales ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

The fact that Guangdong - Hong Kong Greater Bay Area Holdings currently trades at a P/S on par with the rest of the industry is surprising to us since its recent revenues have been in decline over the medium-term, all while the industry is set to grow. Even though it matches the industry, we're uncomfortable with the current P/S ratio, as this dismal revenue performance is unlikely to support a more positive sentiment for long. If recent medium-term revenue trends continue, it will place shareholders' investments at risk and potential investors in danger of paying an unnecessary premium.

We don't want to rain on the parade too much, but we did also find 3 warning signs for Guangdong - Hong Kong Greater Bay Area Holdings that you need to be mindful of.

If you're unsure about the strength of Guangdong - Hong Kong Greater Bay Area 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.