A Piece Of The Puzzle Missing From Deson Development International Holdings Limited's (HKG:262) 33% Share Price Climb

Deson Development International Holdings Limited (HKG:262) shareholders would be excited to see that the share price has had a great month, posting a 33% gain and recovering from prior weakness. Notwithstanding the latest gain, the annual share price return of 7.8% isn't as impressive.

Even after such a large jump in price, it's still not a stretch to say that Deson Development International Holdings' price-to-sales (or "P/S") ratio of 0.5x 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. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/S.

Our free stock report includes 2 warning signs investors should be aware of before investing in Deson Development International Holdings. Read for free now.

Check out our latest analysis for Deson Development International Holdings

What Does Deson Development International Holdings' P/S Mean For Shareholders?

Deson Development International Holdings certainly has been doing a great job lately as it's been growing its revenue at a really rapid pace. It might be that many expect the strong revenue performance to wane, which has kept the share price, and thus the P/S ratio, from rising. If that doesn't eventuate, then existing shareholders have reason to be feeling optimistic about the future direction of the share price.

Want the full picture on earnings, revenue and cash flow for the company? Then our free report on Deson Development International Holdings will help you shine a light on its historical performance.

How Is Deson Development International Holdings' Revenue Growth Trending?

There's an inherent assumption that a company should be matching the industry for P/S ratios like Deson Development International Holdings' to be considered reasonable.

If we review the last year of revenue growth, the company posted a terrific increase of 162%. Pleasingly, revenue has also lifted 69% in aggregate from three years ago, thanks to the last 12 months of growth. Accordingly, shareholders would have definitely welcomed those medium-term rates of revenue growth.

When compared to the industry's one-year growth forecast of 4.8%, the most recent medium-term revenue trajectory is noticeably more alluring

In light of this, it's curious that Deson Development International Holdings' 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 Deson Development International Holdings' P/S

Its shares have lifted substantially and now Deson Development International Holdings' P/S is back within range of the industry median. 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.

We've established that Deson Development International Holdings currently trades on a lower than expected P/S since its recent three-year growth is higher than the wider industry forecast. When we see strong revenue with faster-than-industry growth, we can only assume potential risks are what might be placing pressure on the P/S ratio. It appears some are indeed anticipating revenue instability, because the persistence of these recent medium-term conditions would normally provide a boost to the share price.

Having said that, be aware Deson Development International Holdings is showing 2 warning signs in our investment analysis, and 1 of those shouldn't be ignored.

If companies with solid past earnings growth is up your alley, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

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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.