What Q Technology (Group) Company Limited's (HKG:1478) 36% Share Price Gain Is Not Telling You

Q Technology (Group) Company Limited (HKG:1478) shares have continued their recent momentum with a 36% gain in the last month alone. Looking back a bit further, it's encouraging to see the stock is up 99% in the last year.

Although its price has surged higher, it's still not a stretch to say that Q Technology (Group)'s price-to-sales (or "P/S") ratio of 0.5x right now seems quite "middle-of-the-road" compared to the Electronic industry in Hong Kong, where the median P/S ratio is around 0.4x. Although, it's not wise to simply ignore the P/S without explanation as investors may be disregarding a distinct opportunity or a costly mistake.

Check out our latest analysis for Q Technology (Group)

What Does Q Technology (Group)'s P/S Mean For Shareholders?

Q Technology (Group) certainly has been doing a good job lately as it's been growing revenue more than most other companies. It might be that many expect the strong revenue performance to wane, which has kept the P/S ratio from rising. If the company manages to stay the course, then investors should be rewarded with a share price that matches its revenue figures.

Want the full picture on analyst estimates for the company? Then our free report on Q Technology (Group) will help you uncover what's on the horizon.

Is There Some Revenue Growth Forecasted For Q Technology (Group)?

In order to justify its P/S ratio, Q Technology (Group) would need to produce growth that's similar to the industry.

Taking a look back first, we see that the company grew revenue by an impressive 21% last year. However, this wasn't enough as the latest three year period has seen the company endure a nasty 18% drop in revenue in aggregate. Therefore, it's fair to say the revenue growth recently has been undesirable for the company.

Looking ahead now, revenue is anticipated to climb by 7.5% each year during the coming three years according to the analysts following the company. That's shaping up to be materially lower than the 23% per year growth forecast for the broader industry.

With this information, we find it interesting that Q Technology (Group) is trading at a fairly similar P/S compared to the industry. It seems most investors are ignoring the fairly limited growth expectations and are willing to pay up for exposure to the stock. These shareholders may be setting themselves up for future disappointment if the P/S falls to levels more in line with the growth outlook.

What Does Q Technology (Group)'s P/S Mean For Investors?

Q Technology (Group)'s stock has a lot of momentum behind it lately, which has brought its P/S level with the rest of the industry. 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.

Our look at the analysts forecasts of Q Technology (Group)'s revenue prospects has shown that its inferior revenue outlook isn't negatively impacting its P/S as much as we would have predicted. At present, we aren't confident in the P/S as the predicted future revenues aren't likely to support a more positive sentiment for long. This places shareholders' investments at risk and potential investors in danger of paying an unnecessary premium.

A lot of potential risks can sit within a company's balance sheet. Our free balance sheet analysis for Q Technology (Group) with six simple checks will allow you to discover any risks that could be an issue.

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.