The Market Lifts China Dredging Environment Protection Holdings Limited (HKG:871) Shares 26% But It Can Do More

China Dredging Environment Protection Holdings Limited (HKG:871) shares have had a really impressive month, gaining 26% after a shaky period beforehand. Looking back a bit further, it's encouraging to see the stock is up 43% in the last year.

Although its price has surged higher, given about half the companies operating in Hong Kong's Infrastructure industry have price-to-sales ratios (or "P/S") above 1.4x, you may still consider China Dredging Environment Protection Holdings as an attractive investment with its 0.3x P/S ratio. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's limited.

Check out our latest analysis for China Dredging Environment Protection Holdings

How China Dredging Environment Protection Holdings Has Been Performing

China Dredging Environment Protection Holdings has been doing a decent job lately as it's been growing revenue at a reasonable pace. Perhaps the market believes the recent revenue performance might fall short of industry figures in the near future, leading to a reduced P/S. If you like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's out of favour.

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

Do Revenue Forecasts Match The Low P/S Ratio?

In order to justify its P/S ratio, China Dredging Environment Protection Holdings would need to produce sluggish growth that's trailing the industry.

Retrospectively, the last year delivered a decent 4.9% gain to the company's revenues. Pleasingly, revenue has also lifted 49% in aggregate from three years ago, partly thanks to the last 12 months of growth. Accordingly, shareholders would have definitely welcomed those medium-term rates of revenue growth.

Weighing that recent medium-term revenue trajectory against the broader industry's one-year forecast for expansion of 14% shows it's about the same on an annualised basis.

With this information, we find it odd that China Dredging Environment Protection Holdings is trading at a P/S lower than the industry. It may be that most investors are not convinced the company can maintain recent growth rates.

The Bottom Line On China Dredging Environment Protection Holdings' P/S

China Dredging Environment Protection Holdings' stock price has surged recently, but its but its P/S still remains modest. We'd say the price-to-sales ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

Our examination of China Dredging Environment Protection Holdings revealed its three-year revenue trends looking similar to current industry expectations hasn't given the P/S the boost we expected, given that it's lower than the wider industry P/S, When we see industry-like revenue growth but a lower than expected P/S, we assume potential risks are what might be placing downward pressure on the share price. medium-term

It is also worth noting that we have found 2 warning signs for China Dredging Environment Protection Holdings (1 can't be ignored!) that you need to take into consideration.

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.

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

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.