Sino-Ocean Group Holding Limited's (HKG:3377) Share Price Boosted 63% But Its Business Prospects Need A Lift Too

Sino-Ocean Group Holding Limited (HKG:3377) shareholders have had their patience rewarded with a 63% share price jump in the last month. Unfortunately, despite the strong performance over the last month, the full year gain of 4.2% isn't as attractive.

In spite of the firm bounce in price, Sino-Ocean Group Holding may still be sending buy signals at present with its price-to-sales (or "P/S") ratio of 0.1x, 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 4x 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.

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View our latest analysis for Sino-Ocean Group Holding

How Has Sino-Ocean Group Holding Performed Recently?

As an illustration, revenue has deteriorated at Sino-Ocean Group Holding over the last year, which is not ideal at all. One possibility is that the P/S is low because investors think the company won't do enough to avoid underperforming the broader industry in the near future. If you like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's out of favour.

Want the full picture on earnings, revenue and cash flow for the company? Then our free report on Sino-Ocean Group Holding will help you shine a light on its historical performance.

Is There Any Revenue Growth Forecasted For Sino-Ocean Group Holding?

Sino-Ocean Group Holding's P/S ratio would be typical for a company that's only expected to deliver limited growth, and importantly, perform worse than the industry.

In reviewing the last year of financials, we were disheartened to see the company's revenues fell to the tune of 58%. As a result, revenue from three years ago have also fallen 75% overall. Accordingly, shareholders would have felt downbeat about the medium-term rates of revenue growth.

In contrast to the company, the rest of the industry is expected to grow by 5.6% over the next year, which really puts the company's recent medium-term revenue decline into perspective.

With this information, we are not surprised that Sino-Ocean Group Holding is trading at a P/S lower than the industry. Nonetheless, there's no guarantee the P/S has reached a floor yet with revenue going in reverse. There's potential for the P/S to fall to even lower levels if the company doesn't improve its top-line growth.

The Final Word

Sino-Ocean Group Holding's stock price has surged recently, but its but its P/S still remains modest. While the price-to-sales ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of revenue expectations.

As we suspected, our examination of Sino-Ocean Group Holding revealed its shrinking revenue over the medium-term is contributing to its low P/S, given the industry is set to grow. Right now shareholders are accepting the low P/S as they concede future revenue probably won't provide any pleasant surprises either. If recent medium-term revenue trends continue, it's hard to see the share price moving strongly in either direction in the near future under these circumstances.

You need to take note of risks, for example - Sino-Ocean Group Holding has 3 warning signs (and 2 which don't sit too well with us) we think you should know about.

It's important to make sure you look for a great company, not just the first idea you come across. So if growing profitability aligns with your idea of a great company, take a peek at this free list of interesting companies with strong recent earnings growth (and a low P/E).

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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.