Hong Ho Precision Textile Co.,Ltd.'s (TWSE:1446) P/S Is Still On The Mark Following 31% Share Price Bounce

Hong Ho Precision Textile Co.,Ltd. (TWSE:1446) shares have had a really impressive month, gaining 31% after a shaky period beforehand. Looking back a bit further, it's encouraging to see the stock is up 42% in the last year.

Following the firm bounce in price, you could be forgiven for thinking Hong Ho Precision TextileLtd is a stock not worth researching with a price-to-sales ratios (or "P/S") of 2.1x, considering almost half the companies in Taiwan's Luxury industry have P/S ratios below 1.5x. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the elevated P/S.

View our latest analysis for Hong Ho Precision TextileLtd

What Does Hong Ho Precision TextileLtd's Recent Performance Look Like?

Hong Ho Precision TextileLtd certainly has been doing a great job lately as it's been growing its revenue at a really rapid pace. The P/S ratio is probably high because investors think this strong revenue growth will be enough to outperform the broader industry in the near future. If not, then existing shareholders might be a little nervous about the viability of the share price.

Although there are no analyst estimates available for Hong Ho Precision TextileLtd, take a look at this free data-rich visualisation to see how the company stacks up on earnings, revenue and cash flow.

How Is Hong Ho Precision TextileLtd's Revenue Growth Trending?

The only time you'd be truly comfortable seeing a P/S as high as Hong Ho Precision TextileLtd's is when the company's growth is on track to outshine the industry.

Retrospectively, the last year delivered an explosive gain to the company's top line. The latest three year period has also seen an incredible overall rise in revenue, aided by its incredible short-term performance. So we can start by confirming that the company has done a tremendous job of growing revenue over that time.

When compared to the industry's one-year growth forecast of 13%, the most recent medium-term revenue trajectory is noticeably more alluring

With this information, we can see why Hong Ho Precision TextileLtd is trading at such a high P/S compared to the industry. Presumably shareholders aren't keen to offload something they believe will continue to outmanoeuvre the wider industry.

The Bottom Line On Hong Ho Precision TextileLtd's P/S

Hong Ho Precision TextileLtd shares have taken a big step in a northerly direction, but its P/S is elevated as a result. 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.

As we suspected, our examination of Hong Ho Precision TextileLtd revealed its three-year revenue trends are contributing to its high P/S, given they look better than current industry expectations. Right now shareholders are comfortable with the P/S as they are quite confident revenue aren't under threat. Unless the recent medium-term conditions change, they will continue to provide strong support to the share price.

You should always think about risks. Case in point, we've spotted 1 warning sign for Hong Ho Precision TextileLtd you should be aware of.

If companies with solid past earnings growth is up your alley, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

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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.