LX Technology Group Limited (HKG:2436) Stock Rockets 34% But Many Are Still Ignoring The Company

LX Technology Group Limited (HKG:2436) shares have continued their recent momentum with a 34% gain in the last month alone. Not all shareholders will be feeling jubilant, since the share price is still down a very disappointing 16% in the last twelve months.

Although its price has surged higher, LX Technology Group may still be sending buy signals at present with its price-to-sales (or "P/S") ratio of 0.5x, considering almost half of all companies in the IT industry in Hong Kong have P/S ratios greater than 1.3x and even P/S higher than 4x aren't out of the ordinary. However, the P/S might be low for a reason and it requires further investigation to determine if it's justified.

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View our latest analysis for LX Technology Group

How Has LX Technology Group Performed Recently?

With revenue growth that's exceedingly strong of late, LX Technology Group has been doing very well. It might be that many expect the strong revenue performance to degrade substantially, which has repressed the P/S ratio. 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.

Although there are no analyst estimates available for LX Technology Group, take a look at this free data-rich visualisation to see how the company stacks up on earnings, revenue and cash flow.

How Is LX Technology Group's Revenue Growth Trending?

In order to justify its P/S ratio, LX Technology Group would need to produce sluggish growth that's trailing the industry.

Retrospectively, the last year delivered an exceptional 33% gain to the company's top line. The latest three year period has also seen an excellent 55% overall rise in revenue, aided by its short-term performance. So we can start by confirming that the company has done a great job of growing revenue over that time.

Comparing that recent medium-term revenue trajectory with the industry's one-year growth forecast of 9.3% shows it's noticeably more attractive.

In light of this, it's peculiar that LX Technology Group's P/S sits below the majority of other companies. It looks like most investors are not convinced the company can maintain its recent growth rates.

The Final Word

Despite LX Technology Group's share price climbing recently, its P/S still lags most other companies. 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're very surprised to see LX Technology Group currently trading on a much lower than expected P/S since its recent three-year growth is higher than the wider industry forecast. Potential investors that are sceptical over continued revenue performance may be preventing the P/S ratio from matching previous strong performance. It appears many 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 LX Technology Group is showing 1 warning sign 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).

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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.