Logory Logistics Technology Co., Ltd.'s (HKG:2482) Shares Climb 54% But Its Business Is Yet to Catch Up

Despite an already strong run, Logory Logistics Technology Co., Ltd. (HKG:2482) shares have been powering on, with a gain of 54% in the last thirty days. The annual gain comes to 120% following the latest surge, making investors sit up and take notice.

Even after such a large jump in price, it's still not a stretch to say that Logory Logistics Technology's price-to-sales (or "P/S") ratio of 0.3x right now seems quite "middle-of-the-road" compared to the Logistics industry in Hong Kong, where the median P/S ratio is around 0.2x. 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.

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What Does Logory Logistics Technology's P/S Mean For Shareholders?

With revenue growth that's exceedingly strong of late, Logory Logistics Technology has been doing very well. It might be that many expect the strong revenue performance to wane, which has kept the share price, and thus the P/S ratio, from rising. Those who are bullish on Logory Logistics Technology will be hoping that this isn't the case, so that they can pick up the stock at a lower valuation.

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

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

If we review the last year of revenue growth, the company posted a terrific increase of 34%. Revenue has also lifted 20% in aggregate from three years ago, mostly thanks to the last 12 months of growth. Therefore, it's fair to say the revenue growth recently has been respectable for the company.

Comparing that to the industry, which is predicted to deliver 9.1% growth in the next 12 months, the company's momentum is weaker, based on recent medium-term annualised revenue results.

With this in mind, we find it intriguing that Logory Logistics Technology's P/S is comparable to that of its industry peers. It seems most investors are ignoring the fairly limited recent growth rates and are willing to pay up for exposure to the stock. They may be setting themselves up for future disappointment if the P/S falls to levels more in line with recent growth rates.

The Bottom Line On Logory Logistics Technology's P/S

Its shares have lifted substantially and now Logory Logistics Technology's P/S is back within range of the industry median. 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.

Our examination of Logory Logistics Technology revealed its poor three-year revenue trends aren't resulting in a lower P/S as per our expectations, given they look worse than current industry outlook. Right now we are uncomfortable with the P/S as this revenue performance isn't likely to support a more positive sentiment for long. 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.

And what about other risks? Every company has them, and we've spotted 2 warning signs for Logory Logistics Technology you should know about.

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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.