Revenues Not Telling The Story For Gemdale Properties and Investment Corporation Limited (HKG:535) After Shares Rise 27%

Gemdale Properties and Investment Corporation Limited (HKG:535) shares have had a really impressive month, gaining 27% after a shaky period beforehand. Not all shareholders will be feeling jubilant, since the share price is still down a very disappointing 30% in the last twelve months.

Although its price has surged higher, you could still be forgiven for feeling indifferent about Gemdale Properties and Investment's P/S ratio of 0.3x, since the median price-to-sales (or "P/S") ratio for the Real Estate industry in Hong Kong is also close to 0.7x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/S.

Check out our latest analysis for Gemdale Properties and Investment

What Does Gemdale Properties and Investment's P/S Mean For Shareholders?

With revenue growth that's exceedingly strong of late, Gemdale Properties and Investment has been doing very well. 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 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 not quite in favour.

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

Is There Some Revenue Growth Forecasted For Gemdale Properties and Investment?

There's an inherent assumption that a company should be matching the industry for P/S ratios like Gemdale Properties and Investment's to be considered reasonable.

Retrospectively, the last year delivered an exceptional 69% gain to the company's top line. Still, revenue has barely risen at all from three years ago in total, which is not ideal. Therefore, it's fair to say that revenue growth has been inconsistent recently for the company.

Comparing that to the industry, which is predicted to deliver 4.0% growth in the next 12 months, the company's momentum is weaker, based on recent medium-term annualised revenue results.

In light of this, it's curious that Gemdale Properties and Investment's P/S sits in line with the majority of other companies. Apparently many investors in the company are less bearish than recent times would indicate and aren't willing to let go of their stock right now. They may be setting themselves up for future disappointment if the P/S falls to levels more in line with recent growth rates.

What Does Gemdale Properties and Investment's P/S Mean For Investors?

Its shares have lifted substantially and now Gemdale Properties and Investment'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.

We've established that Gemdale Properties and Investment's average P/S is a bit surprising since its recent three-year growth is lower than the wider industry forecast. Right now we are uncomfortable with the P/S as this revenue performance isn't likely to support a more positive sentiment for long. Unless the recent medium-term conditions improve, it's hard to accept the current share price as fair value.

You need to take note of risks, for example - Gemdale Properties and Investment has 4 warning signs (and 2 which shouldn't be ignored) we think you should know about.

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.