Improved Revenues Required Before CIFI Holdings (Group) Co. Ltd. (HKG:884) Stock's 253% Jump Looks Justified

CIFI Holdings (Group) Co. Ltd. (HKG:884) shares have had a really impressive month, gaining 253% after a shaky period beforehand. The last month tops off a massive increase of 198% in the last year.

Although its price has surged higher, CIFI Holdings (Group)'s price-to-sales (or "P/S") ratio of 0.1x might still make it look like a buy right now compared to the Real Estate industry in Hong Kong, where around half of the companies have P/S ratios above 0.7x and even P/S above 3x are quite common. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's limited.

View our latest analysis for CIFI Holdings (Group)

What Does CIFI Holdings (Group)'s P/S Mean For Shareholders?

CIFI Holdings (Group) certainly has been doing a good job lately as it's been growing revenue more than most other companies. Perhaps the market is expecting future revenue performance to dive, which has kept the P/S suppressed. 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.

Keen to find out how analysts think CIFI Holdings (Group)'s future stacks up against the industry? In that case, our free report is a great place to start.

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

There's an inherent assumption that a company should underperform the industry for P/S ratios like CIFI Holdings (Group)'s to be considered reasonable.

If we review the last year of revenue growth, the company posted a terrific increase of 24%. Despite this strong recent growth, it's still struggling to catch up as its three-year revenue frustratingly shrank by 29% overall. Accordingly, shareholders would have felt downbeat about the medium-term rates of revenue growth.

Turning to the outlook, the next year should bring diminished returns, with revenue decreasing 32% as estimated by the three analysts watching the company. Meanwhile, the broader industry is forecast to expand by 4.9%, which paints a poor picture.

In light of this, it's understandable that CIFI Holdings (Group)'s P/S would sit below the majority of other companies. 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

CIFI Holdings (Group)'s stock price has surged recently, but its but its P/S still remains modest. Using the price-to-sales ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

With revenue forecasts that are inferior to the rest of the industry, it's no surprise that CIFI Holdings (Group)'s P/S is on the lower end of the spectrum. Right now shareholders are accepting the low P/S as they concede future revenue probably won't provide any pleasant surprises. Unless these conditions improve, they will continue to form a barrier for the share price around these levels.

Having said that, be aware CIFI Holdings (Group) is showing 2 warning signs in our investment analysis, 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).

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.