PCCW Limited's (HKG:8) Share Price Matching Investor Opinion

With a median price-to-sales (or "P/S") ratio of close to 0.9x in the Telecom industry in Hong Kong, you could be forgiven for feeling indifferent about PCCW Limited's (HKG:8) P/S ratio of 1x. 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.

Check out our latest analysis for PCCW

How PCCW Has Been Performing

There hasn't been much to differentiate PCCW's and the industry's revenue growth lately. The P/S ratio is probably moderate because investors think this modest revenue performance will continue. If you like the company, you'd be hoping this can at least be maintained so that you could pick up some stock while it's not quite in favour.

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

Is There Some Revenue Growth Forecasted For PCCW?

In order to justify its P/S ratio, PCCW would need to produce growth that's similar to the industry.

Retrospectively, the last year delivered a decent 2.8% gain to the company's revenues. Still, revenue has barely risen at all in aggregate from three years ago, which is not ideal. Therefore, it's fair to say that revenue growth has been inconsistent recently for the company.

Shifting to the future, estimates from the only analyst covering the company suggest revenue should grow by 2.8% over the next year. Meanwhile, the rest of the industry is forecast to expand by 4.5%, which is not materially different.

With this information, we can see why PCCW is trading at a fairly similar P/S to the industry. It seems most investors are expecting to see average future growth and are only willing to pay a moderate amount for the stock.

The Final Word

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 seen that PCCW maintains an adequate P/S seeing as its revenue growth figures match the rest of the industry. At this stage investors feel the potential for an improvement or deterioration in revenue isn't great enough to push P/S in a higher or lower direction. If all things remain constant, the possibility of a drastic share price movement remains fairly remote.

It is also worth noting that we have found 2 warning signs for PCCW (1 is concerning!) that you need to take into consideration.

If strong companies turning a profit tickle your fancy, then you'll want to check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).

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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.