PC Partner Group Limited (HKG:1263) Stock Rockets 60% As Investors Are Less Pessimistic Than Expected

The PC Partner Group Limited (HKG:1263) share price has done very well over the last month, posting an excellent gain of 60%. Looking further back, the 17% rise over the last twelve months isn't too bad notwithstanding the strength over the last 30 days.

Although its price has surged higher, there still wouldn't be many who think PC Partner Group's price-to-sales (or "P/S") ratio of 0.2x is worth a mention when the median P/S in Hong Kong's Tech industry is similar at about 0.4x. While this might not raise any eyebrows, if the P/S ratio is not justified investors could be missing out on a potential opportunity or ignoring looming disappointment.

View our latest analysis for PC Partner Group

How Has PC Partner Group Performed Recently?

For instance, PC Partner Group's receding revenue in recent times would have to be some food for thought. One possibility is that the P/S is moderate because investors think the company might still do enough to be in line with the broader industry in the near future. If not, then existing shareholders may be a little nervous about the viability of the share price.

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

Is There Some Revenue Growth Forecasted For PC Partner Group?

There's an inherent assumption that a company should be matching the industry for P/S ratios like PC Partner Group's to be considered reasonable.

Retrospectively, the last year delivered a frustrating 15% decrease to the company's top line. That put a dampener on the good run it was having over the longer-term as its three-year revenue growth is still a noteworthy 18% in total. Accordingly, while they would have preferred to keep the run going, shareholders would be roughly satisfied with the medium-term rates of revenue growth.

This is in contrast to the rest of the industry, which is expected to grow by 20% over the next year, materially higher than the company's recent medium-term annualised growth rates.

In light of this, it's curious that PC Partner Group's P/S sits in line with the majority of other companies. It seems most investors are ignoring the fairly limited recent growth rates and are willing to pay up for exposure to the stock. Maintaining these prices will be difficult to achieve as a continuation of recent revenue trends is likely to weigh down the shares eventually.

The Final Word

Its shares have lifted substantially and now PC Partner Group's P/S is back within range of the industry median. Typically, we'd caution against reading too much into price-to-sales ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

We've established that PC Partner Group's average P/S is a bit surprising since its recent three-year growth is lower than the wider industry forecast. When we see weak revenue with slower than industry growth, we suspect the share price is at risk of declining, bringing the P/S back in line with expectations. Unless there is a significant improvement in the company's medium-term performance, it will be difficult to prevent the P/S ratio from declining to a more reasonable level.

It's always necessary to consider the ever-present spectre of investment risk. We've identified 2 warning signs with PC Partner Group, and understanding these should be part of your investment process.

If you're unsure about the strength of PC Partner Group's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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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.

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