Kerry Properties Limited's (HKG:683) Share Price Matching Investor Opinion

When you see that almost half of the companies in the Real Estate industry in Hong Kong have price-to-sales ratios (or "P/S") below 0.7x, Kerry Properties Limited (HKG:683) looks to be giving off some sell signals with its 1.5x P/S ratio. However, the P/S might be high for a reason and it requires further investigation to determine if it's justified.

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See our latest analysis for Kerry Properties

How Has Kerry Properties Performed Recently?

With its revenue growth in positive territory compared to the declining revenue of most other companies, Kerry Properties has been doing quite well of late. The P/S ratio is probably high because investors think the company will continue to navigate the broader industry headwinds better than most. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

Want the full picture on analyst estimates for the company? Then our free report on Kerry Properties will help you uncover what's on the horizon.

What Are Revenue Growth Metrics Telling Us About The High P/S?

Kerry Properties' P/S ratio would be typical for a company that's expected to deliver solid growth, and importantly, perform better than the industry.

Taking a look back first, we see that the company grew revenue by an impressive 49% last year. Revenue has also lifted 27% in aggregate from three years ago, mostly thanks to the last 12 months of growth. Accordingly, shareholders would have probably been satisfied with the medium-term rates of revenue growth.

Turning to the outlook, the next three years should generate growth of 12% per annum as estimated by the nine analysts watching the company. Meanwhile, the rest of the industry is forecast to only expand by 3.7% each year, which is noticeably less attractive.

With this in mind, it's not hard to understand why Kerry Properties' P/S is high relative to its industry peers. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.

The Final Word

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.

As we suspected, our examination of Kerry Properties' analyst forecasts revealed that its superior revenue outlook is contributing to its high P/S. At this stage investors feel the potential for a deterioration in revenues is quite remote, justifying the elevated P/S ratio. Unless these conditions change, they will continue to provide strong support to the share price.

We don't want to rain on the parade too much, but we did also find 4 warning signs for Kerry Properties (2 are a bit concerning!) that you need to be mindful of.

If these risks are making you reconsider your opinion on Kerry Properties, explore our interactive list of high quality stocks to get an idea of what else is out there.

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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.