Global Strategic Group Limited (HKG:8007) Soars 66% But It's A Story Of Risk Vs Reward

Global Strategic Group Limited (HKG:8007) shareholders are no doubt pleased to see that the share price has bounced 66% in the last month, although it is still struggling to make up recently lost ground. But the last month did very little to improve the 82% share price decline over the last year.

Even after such a large jump in price, there still wouldn't be many who think Global Strategic Group's price-to-sales (or "P/S") ratio of 0.1x is worth a mention when the median P/S in Hong Kong's Gas Utilities industry is similar at about 0.4x. 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.

See our latest analysis for Global Strategic Group

How Global Strategic Group Has Been Performing

Global Strategic Group has been doing a good job lately as it's been growing revenue at a solid pace. It might be that many expect the respectable revenue performance to wane, which has kept the P/S from rising. 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 not quite in favour.

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

Do Revenue Forecasts Match The P/S Ratio?

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

Taking a look back first, we see that the company grew revenue by an impressive 29% last year. Pleasingly, revenue has also lifted 241% in aggregate from three years ago, thanks to the last 12 months of growth. Accordingly, shareholders would have definitely welcomed those medium-term rates of revenue growth.

Comparing that to the industry, which is only predicted to deliver 4.7% growth in the next 12 months, the company's momentum is stronger based on recent medium-term annualised revenue results.

In light of this, it's curious that Global Strategic Group's P/S sits in line with the majority of other companies. Apparently some shareholders believe the recent performance is at its limits and have been accepting lower selling prices.

The Bottom Line On Global Strategic Group's P/S

Its shares have lifted substantially and now Global Strategic Group's P/S is back within range of the industry median. Using the price-to-sales ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

To our surprise, Global Strategic Group revealed its three-year revenue trends aren't contributing to its P/S as much as we would have predicted, given they look better than current industry expectations. When we see strong revenue with faster-than-industry growth, we can only assume potential risks are what might be placing pressure on the P/S ratio. At least the risk of a price drop looks to be subdued if recent medium-term revenue trends continue, but investors seem to think future revenue could see some volatility.

We don't want to rain on the parade too much, but we did also find 2 warning signs for Global Strategic Group that you need to be mindful of.

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.