Subdued Growth No Barrier To National United Resources Holdings Limited (HKG:254) With Shares Advancing 40%

Those holding National United Resources Holdings Limited (HKG:254) shares would be relieved that the share price has rebounded 40% in the last thirty days, but it needs to keep going to repair the recent damage it has caused to investor portfolios. But the last month did very little to improve the 52% share price decline over the last year.

Following the firm bounce in price, you could be forgiven for thinking National United Resources Holdings is a stock not worth researching with a price-to-sales ratios (or "P/S") of 2.2x, considering almost half the companies in Hong Kong's Transportation industry have P/S ratios below 0.8x. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the elevated P/S.

See our latest analysis for National United Resources Holdings

What Does National United Resources Holdings' Recent Performance Look Like?

The revenue growth achieved at National United Resources Holdings over the last year would be more than acceptable for most companies. Perhaps the market is expecting this decent revenue performance to beat out the industry over the near term, which has kept the P/S propped up. However, if this isn't the case, investors might get caught out paying too much for the stock.

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

How Is National United Resources Holdings' Revenue Growth Trending?

In order to justify its P/S ratio, National United Resources Holdings would need to produce impressive growth in excess of the industry.

If we review the last year of revenue growth, the company posted a worthy increase of 9.3%. Still, lamentably revenue has fallen 42% in aggregate from three years ago, which is disappointing. Accordingly, shareholders would have felt downbeat about the medium-term rates of revenue growth.

In contrast to the company, the rest of the industry is expected to grow by 6.0% over the next year, which really puts the company's recent medium-term revenue decline into perspective.

In light of this, it's alarming that National United Resources Holdings' P/S sits above the majority of other companies. It seems most investors are ignoring the recent poor growth rate and are hoping for a turnaround in the company's business prospects. There's a very good chance existing shareholders are setting themselves up for future disappointment if the P/S falls to levels more in line with the recent negative growth rates.

What Does National United Resources Holdings' P/S Mean For Investors?

National United Resources Holdings' P/S is on the rise since its shares have risen strongly. 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 National United Resources Holdings revealed its shrinking revenue over the medium-term isn't resulting in a P/S as low as we expected, given the industry is set to grow. Right now we aren't comfortable with the high P/S as this revenue performance is highly unlikely to support such positive sentiment for long. Should recent medium-term revenue trends persist, it would pose a significant risk to existing shareholders' investments and prospective investors will have a hard time accepting the current value of the stock.

It is also worth noting that we have found 3 warning signs for National United Resources Holdings (1 doesn't sit too well with us!) that you need to take into consideration.

If you're unsure about the strength of National United Resources Holdings' 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.